Although we’re already a few weeks into the new year, there’s plenty of time to follow up on your resolution to make a budget and stick to it.
- Figure your expenses. It’s easy to identify the big items like the monthly rent or mortgage, student loan payments, car insurance, etc. But do you really have any idea of how much of your paycheck is going to meals out with friends, clothing, gifts, etc.?
Track your spending for a month or so. Use a spreadsheet, or some of the free or low-cost budgeting apps available for iOS and Android. You’re likely to discover that small daily purchases you make really add up over the course of a month.
- Compare your outflow to your income. Look at your paycheck in comparison to your spending. Is your credit card debt growing each month? Are you consistently behind on your payments because you’re living from paycheck to paycheck? These are all signs that you need to get on a spending diet.
- Define your financial goals. Are you saving for a down payment on a house? An emergency fund? A family vacation? For college or retirement? (It’s never too early to start.)
When you’re clear about why you’re saving, it can be easier to make the financial changes that you’ll need to meet your goals.
- Draw up a new spending plan. Calculate your fixed monthly expenses—rent, utilities, phone, food, child care costs, insurance, credit card payments, etc. Include savings or investment money in that calculation; if you wait to save out of the “extra” money you have each month, your savings will never grow, because it’s too easy to spend. Consider having your company take money out of each paycheck to invest in a 401(k) plan, or have your bank automatically transfer money into a savings or investment account each month.
What’s left after you pay all these fixed bills is your discretionary money. This is where you’ll have to make some tough choices and only you can determine your priorities. If you can’t live without new clothes, you may have to spend less on entertainment. If a gym membership is an essential, you might have to cut back on your vacation plans.
Once you have determined your priorities, decide what you will allow for each discretionary category.
- Be flexible. Your budget is likely to change through the year—you may find that you’re willing to spend less on groceries (like junk food) so you can eat out more. You also may have forgotten to include some expenses.
Adjust your budget accordingly, but keep your expenses in line with your income.
- Be creative and be positive. Find new ways to do the things you enjoy for less money. Have friends over for an inexpensive meal and video rather than going out for dinner and a movie. Exchange babysitting time with friends. Go to resale shops instead of department stores.
Don’t think about being on a budget as being deprived—consider it a way to achieve your goals. It will be easier to stick to it that way.