How to Budget
The first step to take when starting a budget is to choose a budgeting method. You can use something as simple as pen and paper, or you could go an easier way by using Excel spreadsheets or a budgeting software program. Any of these will work just fine, but some will be easier than others.
Now, write down where you get all your income and how much. This will include your monthly job wages, any bonuses or tips, interest income from investments and savings accounts, other investment income, and any other income sources. These all added up are called 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.
Subtract your expenses, or net cash outflows, from your income, your net cash inflows. If this is a positive number, you have extra savings each month. That is great. Normally you might be putting this into a savings account or purchasing investments.
A negative net cash flow is a sign up debt. If you are spending more money each month then you are taking in, you are putting yourself into debt. For example, if you come up with -$500, you are going into debt by an extra $500 each month. Tack on the interest rate you are probably being charged (most likely on a credit card) and that debt is growing even faster.
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.
Keep recording your income and expenses for a least a few months. This will help you figure out how to adjust your budget effectively and help you see where you can cut out and cut back on expenses.
If you have any credit cards, pay off the balance each and every month. This will save you a lot on interest. If you already have credit card debt, stop charging to it immediately. You must pay off your debt. If you have trouble with credit cards, once they are paid off, stop using them all together.
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.
Now, write down where you get all your income and how much. This will include your monthly job wages, any bonuses or tips, interest income from investments and savings accounts, other investment income, and any other income sources. These all added up are called 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.
Subtract your expenses, or net cash outflows, from your income, your net cash inflows. If this is a positive number, you have extra savings each month. That is great. Normally you might be putting this into a savings account or purchasing investments.
A negative net cash flow is a sign up debt. If you are spending more money each month then you are taking in, you are putting yourself into debt. For example, if you come up with -$500, you are going into debt by an extra $500 each month. Tack on the interest rate you are probably being charged (most likely on a credit card) and that debt is growing even faster.
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.
Keep recording your income and expenses for a least a few months. This will help you figure out how to adjust your budget effectively and help you see where you can cut out and cut back on expenses.
If you have any credit cards, pay off the balance each and every month. This will save you a lot on interest. If you already have credit card debt, stop charging to it immediately. You must pay off your debt. If you have trouble with credit cards, once they are paid off, stop using them all together.
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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