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Budgeting Basics: 6 Steps for Creating and Keeping to a Budget

Budgeting can be a difficult subject, largely because it gets a lot of negative publicity as a last resort for people who have mismanaged their personal finances. But the reality is that budgeting is exactly what people need in order to avoid money problems. Avoiding addressing your budget concerns only make it more challenging in the long run. Budgeting may be misunderstood but here are a few tips to get you on your way to taking control of your finances.   

Approach Budgeting With a Healthy Mindset

Budgeting should be seen more as a helpful life-hack and less of an attempt to strip all of the joy out of living by denying yourself anything and everything that isn’t food, water or shelter. It’s a simple matter of managing the balance between cash coming in and cash going out. Budgeting can even help you maximize savings. It’s a common-sense thing that should be a regular part of life. If budgeting feels drastic to you, you may be in more need of a budget than you realize.

Know How Much You Have to Work With

In the interest of keeping it to budgeting basics, grab your most recent paystub or direct-deposit statement and find out exactly what your take-home pay is over a month.

Identify Your Fixed Monthly Expenses

Take a look at your monthly bills and figure out which ones are non-negotiable. Rent or mortgage. Utilities. Car payments. Student loans or other debt. Any payment that someone is expecting you to make on a regular basis. That figure represents how much you absolutely have to come up with every month. If that doesn’t fit comfortably into your take-home pay, you may need to consider other options, in addition to building your budget.

Track Your Monthly Spending

This probably isn’t something you’ll be able to figure out just by making a list. Spend at least a month or two actively tracking your spending. If you use a credit card, your statement will be a big help. Consider carrying a small notebook or use a note-keeping app from your phone to track things, too, especially cash purchases. When you make a purchase, log it, whatever it is, large or small. At the end of each day, separate those amounts into categories. Make them as broad or specific as you want (e.g., count dining and entertainment separately, or as one category). You can do that on paper or with some easy-to-use personal finance software.

Compare Your Income and Outflow

Time for more basic math. What’s the difference between the money you bring in during a month and the money you spend? After doing the math, you’ll find yourself in essentially one of three situations: 1) Spending less than you bring in, 2) Spending pretty much exactly what you bring in, 3) Spending more than you bring in.

Let the Self-Negotiation Begin

A good way to gain control over spending is to pick an area that seems too high. For instance, if you find yourself eating out a lot, ask yourself why. The answer may be as simple as picking less expensive places to eat or even better meal planning at home and making food ahead of time that can be frozen for later. Are you making more than a couple of high-end coffee shop runs every day? Maybe you can start by declaring a few “no latte days” or finding a less-expensive alternative to your regular coffee shop.

Something a Little Easier?

If you know you’re in decent financial shape and just need a little help keeping track of numbers, you might take a look at something called 50/30/20 budgeting or other types of less detailed budgeting. The U.S. Government also has some great budgeting basics to share.
All of that brings you to the real challenge: sticking to your budget, which circles back to the opening point. Your budget is a positive thing. It doesn’t exist to turn you into a joyless miser. It’s there to help you make the most of your financial resources. With that in mind, treat your budget as a work-in-progress, a way to constantly discover trends in your spending that can help you make smarter choices. You may find, after a year of making small adjustments, you’ve taken a big step toward having a chunk of your net income left over at the end of the month and setting yourself up for a sunny financial future.
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