It’s simple to learn how to budget your money if you follow these basic steps – although it will take a certain amount of time and dedication.
1. Count your earnings. How much money do you take in each month? This includes anything from salaries, to moonlight jobs, to change found underneath your couch cushions. If you don’t know how much you’re taking in, there’s no way you can control the flow of where your money goes. Use whatever method works for you to count your earnings: build a spreadsheet, use a notebook, or even write on a chalkboard if you have to.
2. Count your expenditures. How much money do you spend each month? Take into account your fixed bills, such as housing and debt repayments, as well as fluctuating expenses, such as costs for gas, food, clothing, and entertainment. It’s as important to know how much you’re spending as it is to know how much you’re making. At this point, it doesn’t hurt to include some things that you really want to (or should) be paying for, such as an extra haircut a year, savings for an emergency or college fund, or (gulp!) health insurance. While you’re at it, set up at least a basic system for regularly tracking your expenses from this point on. This will make evaluating the results of any changes you decide to make much easier.
3. Subtract your expenditures from your earnings. If the number is negative (that is, less than zero), take a deep breath. This means that you’re spending more money than you make. Your situation isn’t hopeless, but you’ve got a lot of work to do. If the number is positive, pat yourself on the back, but know that you’re not out of the woods yet.
4. Decide if you’re willing to make changes. If you’re in the black (i.e., you’re making more money than you spend) you might decide that you want to keep living your life the way you’ve always lived it. But if you’re in the red, or else you want to add more expenses (like a new car, a new house, or a new child) to your life that will put you in the red, at some point circumstances are going to force you to change your ways. Better to make the choice while you still have options.
5. Start big. Unless you have a serious caffeine or nicotine addiction, changing little things in your life won’t seriously affect how much money you have to work with; instead, it will just make you frustrated and irritable. If you need to bridge a serious gap (such as several hundred dollars a month or more), you need to take a good look at your biggest expenses. These vary from person to person, but it’s likely that food, housing, and transportation costs are somewhere near the top of your list. Brainstorm ways to reduce these costs. Can you take in a roommate? Rent out a room for people during sporting events? Learn to cook twenty different rice and bean dishes? The more creative you can get, the more likely you are to find a change that you can deal with. And, if not, remind yourself that you don’t have to live with the change forever.
6. Fill in the cracks with the little things. If you’ve made some big changes, and you’re still a bit shy of making ends meet, use the same brainstorming concept on your smaller expenses. Can you host a clothing swap with your friends instead of buying new? Can you challenge yourself to going one month without buying any knick-knacks? Can you start a container garden and can your own produce? Choosing actions that fit your unique personality will make it much easier to stick to your new budget.
Remember, budgeting doesn’t have to be a bad word if you make it work for you.