And now for my next trick, I will successfully manage my money using just my budget!
If it were that easy, more people would budget. Budgeting is
tricky. It’s one thing to notate and categorize expenses, but it’s a whole
other ball game to cap your spending. For this month’s blog, I will show you
how to BYOB using these five easy steps:
Step 1: Record your expenses.
What does that entail? Write down
every transaction you make – big or small. If you are tech savvy, start your
budget on an Excel spreadsheet. Make sure you record the date, item or item description, place, and then identify whether or not the
transaction is a debit or credit.
Debit: Money going out of your account
Credit: Money going into your account
Subtract the amount from your balance, or add the amount to your balance and
you’re done! Now, on to the next step.
*Tip: Use “Google
Sheets” to record your transactions on the go or at home! There are also many apps available to help you
with your budgeting needs.
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| Figure 1 |
Step 2: Categorize your expenses.
Recommended categories include: housing,
transportation, food, personal care, healthcare, debt, utilities, and
entertainment. Everyone is different, so feel free to create categories as you
see fit.
Step 3: Cap it!
Now that
you know where your money is going, figure out where you can decrease your spending
or create a category amount you cannot surpass. You must discern between which
purchases are “wants” and which purchases are “needs”. As much as you think that third Starbucks during the week is a “need”, it’s actually an extra
$5.00 you could use to pay off debt or stick in your emergency savings account.
Here are the recommended budgeting guidelines according to
the Credit Counseling Society:
In the figure below, you will notice where caps have been
created for each category based on the amount spent the previous month. You
will notice in Figure 1, the individual had an unexpected flat tire at the end
of the month that put his account in the negative. The individual probably had
to pull money out from savings in order to recover. For the next month, the cap
of $100 for “Personal Care” and the cap of $300 for “Food” will prevent
overspending.
Step 4: Create a master budget.
The longer you track your expenses, the better idea you will
have of how much money you should budget per category. Some people eat out more, but spend less on
personal care; other people enjoy traveling more than purchasing clothes. You
can also decrease your spending in certain areas to pay off debt quicker. After
a few months, you should be able to create a master budget to further assess
your financial wellness.
Step 5: Keep calm and budget on.
Budgeting may be a little mundane...monotonous...etc., but, once you notice your checking account balance is never negative, your savings account is growing, AND YOUR DEBT IS DECREASING, you'll learn to love it. Are you up for the budget challenge?
