Budgeting 101: A Guide to Keeping Track of Your Finances

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Do you ever get to the end of the month and wonder what’s happened to all of your money? You can’t remember what you spent it on or how much was actually spent. You need to have a plan with your money – that’s where budgeting comes in. It can help you figure out what you should be spending each month and will then prompt you to keep track of your spending habits. It can seem a little overwhelming at first, but there are a few simple steps you can take to get your budget up and running. Then, all you need to do is stick to it.

Why budget?

It’s necessary. “They’re the only practical way to get a grip on your spending — and to make sure your money is being used the way you want it to be used,” writes CNN Money.

Small purchases that don’t seem like much (think about your daily Starbucks run) can absolutely add up over time. By coming up with a budget, you can start to track your expenses and know when you’ve used up your coffee money for the month. Often it’ll encourage you to find cheaper alternatives to some of these expenses, such as making your coffee at home or only visiting Starbucks once a week.

Budgeting will allow you to know where your money is coming from, how much is there, and where it’s all going.

Budgeting basics

Keep track of every expense, even the small ones. Yes, there are some expenses that you can remember on your own, such as rent or mortgage payments. But what about your other expenses, like groceries? For those types of purchases, save your receipts, or put all of your purchases on the same debit or credit card to make record keeping easier.

Update your budget daily. If you take a few minutes every day to record what you’ve spent, it won’t take long at all. It can get overwhelming if you put if off for awhile and then have a week’s worth of expenses to catch up on.

Accurately describe your expenses. “Write down your expenses by what they are rather than where you purchased them so you’ll be able to figure out later how much you spend in particular categories,” writes Investopedia. For example, if you go to Target and purchase an assortment of groceries, cleaning supplies, and clothes, you should record those specific expenses in your budget. If you just say Target and $200, it won’t give you a great idea of what you purchased.

Think long term. When you’re budgeting, think about each month, rather than each paycheck. It will help you look a little more long term and will give you a clean slate each month.

Plan for fixed and variable expenses. You’ll have some of both each month. Items like rent and health insurance fall under fixed expenses because they won’t change (unless you move). However, things such as utilities will be filed under variable expenses because they can change from month to month.

Plan for everything. The key with budgeting is anticipating everything you’ll be spending money on. That includes occasional expenses, such as car insurance, doctors visits or even birthday gifts. You know that Christmas comes around once a year, so budget accordingly, so you have money to spend on presents.

Create a budget

Now that you’ve got an idea of the budgeting basics, you can go ahead and get one started. Here’s what you should do:

  • Identify how you’re spending your money.
  • Evaluate your current spending and set goals (keep in mind long-term financial goals when doing this).
  • Track your spending to make sure you’re sticking to your goals.

Setting up a budget can be done by hand, but using software can take a lot of grief out of budgeting, writes CNN Money. Try a program such as Quicken or Microsoft Money, which have built-in budgeting tools.

When you’re determining your budget, only include income that is guaranteed each month. Don’t include money that comes from tax refunds, bonuses, or even occasional side jobs. That way if you do have some extra income occasionally, it’ll be a pleasant surprise to you and your budget. Also, budget so that you’re not spending more than 90 percent of your income. You can then put the other 10 percent toward more long-term items.

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