How to Budget Your Finances
As much as we’d all love to not worry about budgeting, if you don’t develop a budget to control your finances, your spending is more likely than not to exceed your limits. Between your necessary living expenses, entertainment and leisure, paying off debts and saving for retirement, managing your money can seem overwhelming. Don’t buy into financial myths that scare you away from creating a sensible budget. Read on for an easy budgeting quick start.
Track Your Spending: This is step one in any guide on how to budget. To develop a financial plan, you have to know where your money is going. Use a spreadsheet and a money journal to keep track of everything you spend, no matter how small. Once you have a spreadsheet covering a couple months of spending, you’re ready for step two.
Divide and Conquer: With your spreadsheet handy, divide your areas of spending into necessities (home, auto, food, insurance and utilities) and flexible expenditures (entertainment, travel and expensive habits). Ideally, only about 50 percent of your income should go toward necessary costs and 30 percent to flexible ones. This leaves you with 20 percent for savings, emergency use and other long-term plans.
Set Financial Goals: Finally, set goals for how you will spend your money. If your spending exceeds your income or leaves you little left for saving, consider giving up luxuries like cable, expensive groceries or daily habits that add up quickly. Continue tracking to better manage your weekly and monthly spending, as well as long term goals like paying off a mortgage or preparing for retirement.
With these budgeting tips in mind, you should have a good grasp on how to manage your finances. Remember that budgeting comes with its own reward: security, confidence and the freedom to decide where your money goes.
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