The first step to getting your finances in order and taking control of your spending is to identify what exactly you are spending your money on. This may sound obvious but for many, it’s very easy to spend their money without really having a plan or long term goal in mind. In order to get a clear picture of where your money is going every month you should devise a monthly budget planner.
Your monthly planner can be as simple as a piece of paper and a pencil or as elaborate as a computer program, or something in between that you created yourself on your computer. Whichever option you choose just remember that there are some basic elements you have to include in order for it to be effective.
The biggest area where people make a mistake when trying to figure out a budget is that they aren’t realistic. They will sit down and be determined they are going to get their budget under control and they will set up a very strict budget that doesn’t allow them any wiggle room at all. This is just like trying to starve yourself to lose weight, it doesn’t work.
Instead, be willing to compromise with yourself on your budget. For example, let’s say after you’ve analyzed your spending you realize that you spend $400 a month on coffee. Instead of saying you will never buy coffee again, unless you really believe that you can stick to that, a better alternative is to make a commitment to cut that bill in half. That is a more realistic and more achievable goal and one you’re more likely to be able to accomplish.
The next thing you have to do is make sure you include all your expenses, even the ones that aren’t made every month but maybe only made quarterly. This would include things like insurance premiums, property taxes, clothing budget, etc. In order for your budget to work you have to include everything that you spend money on on a regular basis.
If you want to make sure you don’t forget anything, look back over your credit card statements and your check book register for the last several months. That will give you a real clear idea of what you are spending your money on and you can include that in the ‘expenses’ side of your budget plan.
Once you’ve listed all your expenses you will need to list all of your income. If you combine income with a spouse or a roommate make sure to include their income too. If you don’t always get paid the exact same amount from one month to the next, take several months worth of pay stubs and average them out. This isn’t perfect but it should give you a reasonably good starting point.
Now comes the fun part, or maybe not, once you’ve got your expenses and your income listed all you need to do is subtract your expenses from your income to see if you have money left over at the end of the month or not.
If you find that you are actually coming up with a negative balance every month it’s time to take serious action and either make more money or cut back on your spending. There is no magic in between. If you find you are spending more money than you make you are living in a house of cards and eventually it will tumble down right on top of your head.
Use a monthly budget planner to take control. It may not be fun or easy, but once you’ve gotten everything under control you’ll be amazed at how much more relaxed you are without having to always worry that things could all fall apart at any minute.