Nearly everyone has experienced financial distress at some point, whether through a financial emergency or simply bad decisions concerning money. However, creating and following a budget goes a long way toward reining in your finances.
Measure Income versus Monthly Expenses
At its most basic element, a budget is nothing more than an accounting of the money that comes in versus the money that goes out of an individual or household. Calculate monthly take-home income versus regular expenses, such as mortgage or rent, utilities, transportation, food, credit card debt, student loan payments, or similar expenses. If there is sufficient income to cover monthly expenses, plus savings, congratulations. However, if the result is “more month than money,” you’ll need to determine how to make up the shortfall.
Don’t Overlook “Minor” Items
It’s common to overlook spending for day-to-day items, such as that morning coffee concoction from the coffee shop on the way to work, or money withdrawn from an ATM. But these items can really add up. Keep a running tab of EVERY penny you spend for a week or two weeks to get a handle on “minor” expenses that could otherwise represent an undetected drain on your budget.
Set Aside Funds for Periodic Expenditures
If you have a car, it will need periodic tune ups. If you have kids, they will need school supplies in the fall. These annual or periodic expenses can put you in a financial bind unless you plan for them and set aside funds in your budget to cover them.
Cut Non-Essentials If Necessary
If your income doesn’t cover your expenses, you have two choices: generate more income or shave your expenses. Many households can generate substantial savings by making fairly painless cuts – such as trimming a cable TV package (or cutting the cord altogether), eating at home more often, or keeping a car for an extra year or so. A word of caution: Unless your budget is in severe distress, don’t be too severe with your cuts, or you’ll feel resentful – and you may go on a spending binge as a reaction to your constraints.
Employ Your Computer or Mobile Device
These days, technology can relieve a lot of the tedium associated with budgeting. Personal finance software, such as Quicken, or mobile apps, like Mint, include built-in tools that perform a lot of the heavy lifting associated with keeping track of spending or bill payment. Your bank may also offer online banking services. If so, take advantage of them.