How to Make a Budget—and Stick to it
Already, you’ve got a pained look on your face. Just seeing the word “budget” leads to thoughts of scrimping and saving efforts taken to the extreme. Relax for just a second—uncross those arms, un-scrunch your forehead—and consider that budgeting will actually help you have more money, not less. You won’t need to eat noodles out of a can or wear shoes five seasons old. Budgeting your money is about making a plan that allows you to pay your bills, keep your credit in check and save a little for a big purchase or for future plans. You can do it—just a few changes and some increased awareness can pay off big.
Step 1: Keep a money journal
Before you go on a cash diet, keep a notebook on hand for several weeks and to keep track of where all your money is going. Write down who you owe, how much each bill is and when they are due to be paid. When you really sit down and take a close look at your current bills you might find out that your cell phone bill is twenty or thirty dollars higher than you realized because of all that extra texting and those noontime calls that aren’t included in your plan. Take note of each time you spend, every time you spend. You can then compare the cost of items that you buy. A soda at the corner store might be much more expensive than if you bought a case at the grocery store. For now, just keep track of all your spending, even if it is only a dollar or two. Be ready to crunch the numbers at the end of the month.
Step 2: Identify where your money is going
The daily latte is one thing, but to really get your budget in check, you need to figure out how much you’re spending on the big things too. So get out some paper, and at the top, write down your total monthly income after taxes. Then write down what you spent on every bill this month including loans and credit cards. Divide each number into your income to determine the percentage you are spending for each expense (Example: You spend $725 on rent and make $2400 per month: 725/2400= 30%). Then compare those percentages to what experts recommend is the smartest way to divvy up your income:
- Your base rent (not including utilities) should account for about 30% of your income.
- 10% should be spent on utilities and other necessary living staples, such as cleaning supplies and toilet paper.
- Student loans should account for 8% of your income.
- Credit cards, car payments and any other personal loans should come in between 10 and 20% of your income.
- Car insurance (or if you don’t drive, your transportation costs) should account for 15%.
- 8% should go toward clothing and similar items.
- Food expenses (including eating out) should be no more than 18% of your income.
- You can spend up to 5% on recreation and entertainment.
- 10% goes into savings.
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