Constructing a Simple Budget
The first step in constructing a budget is to create notes on how your funds are being used. To keep track of your cash flow correctly, it's better to keep accurate track of all the income you spend for a minimum of a couple weeks instead of trying to recall from memory alone. Keeping proper track of everything from your mortgage to that burger at lunch is important to get the full picture. Don't forget to write down everything, you'll see that even the smallest of expenses can really start to add up.
- In your spreadsheet tool (or on a piece of paper if that's not an option) lay out all of your expenses, and add them up to get a total (preferably for a month).
- In another column on your spreadsheet (or the other part of that sheet of paper), line up and add your income for the month to get a second total.
Once you subtract your total spending from your total income, you'll know exactly how much you have left each month, or how big of a deficit you're running if you're spending beyond your means. If you've got plenty remaining, that's great. If you're in the same situation as many borrowers and you are either in the red at the end of the month or cutting it close, now's the time to analyze your spending and discover how to make those numbers improve.
Your financial objectives will dictate how you change your spending, if at all. As long as you're not having a difficult time keeping up and have some money to place aside for a rainy day, you might not need to change anything. If you are getting into arrears struggling to make ends meet, or attempting to have more left each month to pay down your debts and start saving; start by identifying expenses that can be lowered painlessly. Spending $5 a day on coffee? Buy a thermos and make it from home in the morning. Spending a lot eating out? Why not pack a lunch? A lot of these tiny expenses might easily add up to quite a few dollars each month, which can go a long way towards your objectives.
Your bill payments can often be lowered also. Are you paying too much for phone bills or paying for exorbitant television charges? See how you can save, and what services and subscriptions you might do without.
If you have already done what you can to decrease your costs yet you're still running a deficit, it's time to find out if it is possible to reduce the costs of carrying your debts. Might you be able to get a better mortgage rate or reduced interest on your credit cards? If you're allocating a lot of your income to interest, debt settlement or consolidation services are worth considering.
Taking a good look at your financial state will reveal where you may be spending too much, and that should assist you to vary your spending habits accordingly to achieve your financial goals.
