How to Budget Your Money

culled from:wikihow.com

Part 1 of 4: Tracking Your Income and Expenses

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   Create a spreadsheet. Look for a clean, easy to use design, the simpler, the better.
   • Your goal is the chart all your expenses and income during the course of a year, so make a spreadsheet that shows all your information clearly, allowing you to quickly identify any areas where you can spend smarter
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      Determine your overall income and add it to the spreadsheet. Are you on a fixed salary where you know for certain how much you're taking home each week? Are you a freelancer whose salary varies each month? Having a rough idea of how much money you can expect to earn is essential to creating a successful budget.^[2]
      • If you are an independent contractor or freelancer, keep in mind what you bring home is not the same thing as what you earn. For example, you may bring home $2,500 every month, but that's pre-tax. Figure out how much you're likely to need to pay in taxes and subtract that from your monthly income to arrive at a more accurate number.
      • If you are a salaried employee, don't factor in a possible tax refund into your overall income. Your monthly income should reflect only what you bring home after taxes. If you do get a tax refund, you'll get to do with it as you please; if you don't, you won't need to worry about it.
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      Identify your expenses and add them to the spreadsheet. What are the bills that you have to pay every month? Do you go out to dinner with friends every Friday night or to the movies once a week? Looking at where your money is going will give you a better handle on tracking it.^[3]
      • There are free Internet tools to help you track your money.
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      Break down what you're spending into categories. This will make it easier for you to see where your money is going. Include future spending as well as current spending, such as planned vacations, birthday gifts, car maintenance, etc. Some categories you might use to break down your expenses include:
      • • Home (mortgage, upkeep, insurance)
        • Auto (loan, maintenance, insurance)
        • Food (groceries and restaurant purchases)
        • Utilities (Gas, electric, water)
        • Health and fitness (medical, gym membership, grooming)
        • Travel and vacation
        • Personal (entertainment, shopping, clothes, birthday gifts)
        • Savings
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      Compare your regular expenses with your paycheck amount. Do you get a negative number? If so, you are living way beyond your means. If you have money leftover, split that money up into these groups:
      • Flex money. This should be about 10-20% of your paycheck, set aside for unforeseen expenses like a car accident or unexpected bill.^[4]
      • Savings. In an ideal world, you might save about 30% of your paycheck. In the real world, you should shoot to save about 10%, however big or small your paycheck is.^[5][6] Build up enough savings for an emergency fund (about 4-6 times your regular expenses), then start saving money to invest.
      • Spending money. This is whatever is leftover after you subtract flex money and savings money. It's what you'd spend on things like clothes, eating out or other fun activities. If you don’t have much fun money at the end of your subtractions, you may need to learn how to lower your expenses.^[7]

   Part 2 of 4: Creating Your Budget

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      Set financial goals. These should be short-term and long-term. It often helps to have something to be working towards to help stay on track with your budget. For example, if you want to save for a house, it helps to have that goal on your radar.^[8]
      • Short-term goals include not spending more than a certain amount of money every month or saving a few hundred dollars every month. Short-term goals are often easier to reach than long-term goals.
      • Long-term goals include being able to put down a mortgage payment on a home or a car, or begin meaningfully preparing for retirement. Because the fruits of our labor aren't seen immediately — they're often not seen for decades, in fact — long-term goals can be extremely hard to budget. But putting aside even a little bit of money for the future can go a long way.
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      Identify your essential expenses. These include basic expenses like rent or a mortgage, electricity and heat, food and diapers, for example. Add all these items up to determine how much of your monthly income is left after you account for the bare necessities.
      • If the bulk of your income is taken up by necessities, don't worry. There are always ways to tighten your belt, and also ways to make more money. The important thing is making a budget and sticking to it; this feat alone will help you start to rise above your circumstances.
      • If you have some wiggle-room after accounting for your essentials, that's great news. Not everyone has that luxury. Begin thinking about how you're going to prioritize the rest of you discretionary spending.
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      Budget out the rest of your discretionary spending. This part of your budget is all about identifying values. What values do you have and how do you want to spend your money to realize them? Money, after all, is a means to an end, not an end in itself.
      • What sort of a person are you, and what do you like to do? Many people end up spending money on hobbies, interests, or charities. Think of this as investing in an experience or feeling of satisfaction.
      • Think about what makes you really happy. A popular theory is people who spend money on experiences are actually happier than people who spend money on possessions.^[9]
      • Consider setting aside more money for travel and vacation.
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      Use software to help you budget. Personal finance software is quickly becoming the new trend in finance. These programs have built-in budget making tools that can help customize your budget, along with analytics that help you project cash-flow into the future and better understand your spending habits. Some popular personal finance software include:^[10]
      • Mint
      • Quicken
      • Microsoft Money
      • AceMoney
      • BudgetPulse

   Part 3 of 4: Becoming a Budget Pro

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      Stick to your budget and don’t overspend. This is the first rule of budgeting, and pretty much the only one. It sounds fairly obvious, but it's easy to go over budget, even when you have one in place. Be mindful of your spending habits and what your money is going towards.^[11]
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      Keep a journal of your daily spending habits. This step might be especially helpful during the early stages of keeping a budget.
      • Notice any repeated purchases that could be avoided or limited, like having a coffee at Starbucks every other morning or once a week, rather than every morning.
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      Try to reduce larger expenses. These are often the most unpleasant, but most effective ways to stay within a budget. If you take an annual vacation, consider staying home this year.
      • Think about any "vices" you may have that are also pretty expensive. If you enjoy a weekly massage or have a preference for expensive wine, cut down on these vices so you’re spending money on them only once a month or once every second month.
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      Cut down on smaller expenses. Over time, small savings can add up and can lead to extra money for rent or for your credit card debt.^[12]
      • Shop at a cheaper grocery store and buy generic brands.
      • Try to cook at home at least three times a week to save money on eating out.
      • Cut back on expenses like your cellphone plan or your cable by choosing a cell phone plan that is cheaper with less data or getting rid of cable all together.^[13]
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      Treat yourself periodically, but within reason. Your money has to work for you, not the other way around so if you start to feel like a slave to your budget, or to money in general, it’s important to allow yourself a small treat every month that won’t break your budget.
      • Don't abuse your own rewards system to the point where it gets counterproductive and ends up affecting your budget. The idea is to treat yourself to smaller, cheaper items like a latte or a new shirt and to avoid spending money on more expensive items like a vacation or a pricey pair of shoes.
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      Leave your debit and credit cards at home when going out. When you're out for the night, it's very easy (and tempting) to leave your debit or credit card at the bar and ring up a tab. Avoid doing this, as this is a very easy way to ring up a high bill that could set you way off budget.
      • Take out cash for the week or the month and designate it your spending cash. That way, once you have spent all your cash for the week, you know you have reached your limit and cannot go over your budget.
      • Avoid making repeat trips to the ATM for cash more than once a week, as this could lead to unnecessary spending.^[14]

   Part 4 of 4: Making Your Budget Go Further

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   Cut your taxes. Take better advantage of itemized deductions when you file your taxes every year.
   • Start keeping your receipts, especially if you're an independent contractor and work from home or remotely. There are many amenities you can expense as part of your contract work when doing your taxes.^[15]
   • It’s a good idea to research ways to get a better tax refund as a contractor or ask your accountant how you can get a better refund.
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   Appeal your home assessment. If you're a homeowner and have sufficient evidence, you might be able to cut your real estate taxes by challenging the value that a home assessor puts on your property.
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   Stay ahead of inflation. Over time, inflation raises the cost of living. A three percent rise in prices annually doubles the cost of everything within 24 years. If your income starts to rise, don't start spending it on luxuries until you've made sure that you can stay ahead of inflation.
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   Don't count on windfalls. Don't factor in potential sources of revenue, such as year-end bonuses or tax refunds. You only want to include guaranteed money in your budget.^[16]
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   Adjust your budget to reflect any changes in your cash flow. Because you’re making a budget to then create more wealth in the future, make sure you reassess your budget after a year or 6 months and adjust your budget based on any changes in your cash flow, from new expenses to new income.
   • For example, you may be welcoming a new member to your family and now need to adjust your budget to account for expenses like diapers, baby clothes, baby food, etc.
   • You may also be celebrating a raise or completely paying off a loan or debt, and these events will also affect your budget, so adjust it accordingly.