Create a budget you can keep
A budget is a written plan that helps you keep track of how much you earn (your income) and how much you spend (your expenses). It's perhaps the single most important tool for understanding how to manage your money, because it clarifies exactly where your money is going.
You can also use your budget to figure out how much you can save and invest. To get started, follow these three essential steps:
First, divide your expenses into two categories.A simple but effective way to look at your expenses is to divide them into nondiscretionary (your needs) and discretionary (your wants) categories.
- Nondiscretionary expenses are the "must haves," such as your mortgage or rent, groceries, transportation, insurance premiums and taxes. Be sure to include debt payments such as credit cards and auto loans. You may find it helpful to include your savings and investing goals as line items in your nondiscretionary category (for example, retirement savings, education expenses or medical care costs).
- Discretionary expenses are the "nice to haves," the extras such as restaurants, entertainment, travel and even clothing.
Then list your sources of income.Where is your money coming from? Your regular wages are most likely your primary source of income. But don’t forget to add in other sources such as bonuses, gifts, income from rental property, interest or investment income, government checks or any other source.
Coming up short? Prioritize.This is where you may have to prioritize in order to reach your goals. For instance, can you cut back on entertainment in order to save more? Would it be more economical to take public transportation than pay high gas prices?
Our monthly budget planner can help you more easily calculate your expenses and allocate your income.
It will also help you see more clearly where your money is going and how you may have to modify your spending.
our two cents
Here’s a simple idea: Try carefully tracking your spending for 30 days. Does it match your projections? Do you need to change your daily spending habits to meet your longer-term savings goals?