How to Budget
To start a budget, you need to decide on either a budgeting software, using excel, or using a regular notebook and pen. Of course, using software or excel is going to be much easier for you, so I would suggest using one of them. If you have a very small budget, a notebook might be fine, but for most, software would be best.
Next, you need to write down all of your income sources. These are called your cash inflows. These include wages, bonuses, tips, interest income, capital gains, dividends, and any other money you make each month. Record these as your monthly cash inflows.
Your cash outflows include all your expenses. Add up every penny you spend in a months time. Add together rent or mortgage, food, entertainment, gas, and anything else. Add everything you spend whether it was paid for by check, credit card, or cash. Include absolutely every expense being as specific as possible.
Now subtract your outflows from your inflows. This number is called your net cash flows. If it is positive, you are saving money. This is extra money each month that you are probably putting into some kind of savings. For example, if your net cash flows is $200, you are increasing your wealth by $200 each month. If you don’t have this much extra each month, you must have added up your columns wrong.
If you have a negative net cash flows, this means you are going into debt each and every month. If your net cash flow is -$200 every month, you are going into debt $200 every month. In actuality, it is more because you are probably being charged interest on the debt you have because its either a loan or on a credit card.
If you get a zero when you subtract the number or just a few bucks either way, you aren’t going into debt, but you probably have no savings either. Sure, this is better than debt, but without savings, it’s not better by much.
In order to maintain an effective budget, you need to keep recording your income and expenses, at least for the first few months. Look through your budget and wee where you can cut back. Finally, stick with what you are budgeting. Only buy what you have set for yourself.
Always pay off the entire balance on any credit cards you have each month. You’ll save a load of money on interest. If you have credit card debt, stop using your credit card and work on paying it off as soon as possible, or sooner. Stop charging all together, even after debt is paid off, if you have trouble spending with credit cards.
Stick with your budget. As time goes on, it will get easier. Continue to adjust it until you are saving what you need and can live by it. Eventually, following your budget will become second nature. Set up savings goals to put the money you are saving to good use such as paying off debt, building an emergency fund, buying a house, etc.
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