You can create a budget easily when you know where your money is going. It can seem complicated if you’ve never done one before, but really it’s not. All you’re doing is making a list of your expenses and trying to figure out what you’ll spend in each area next month. If you’re not comfortable with spreadsheets, then just use a piece of paper and pen. The point here is to create a plan for how you’d like to spend your money.
When you’re budgeting: group things together. I start with the things that happen every month and what you can’t avoid – accountants call these your “fixed costs”. Then list all the extras.
Things you can’t avoid:
- Rent or mortgage payment
- Property tax
- Car payment/bus pass/transportation
- Tuition payments
- Insurance payments
- Heat (gas/oil)
- Hydro (electricity)
- Internet connection
- Eating out (include all the snacks you eat while you’re out as well)
- Entertainment (include nights out, iTunes)
- Gym memberships/fitness classes
- Gadgets (include iPods, Blackberries, etc.)
- Others (include anything else that you spend money on)
Total (add all of the above up):
Just by writing out what all of these things cost, you may have learned that there’s something that needs to change. The next step to creating a budget is to make all of this balance with how much money you earn. Write down how much money you make each month and check where you fall:
- Does your salary cover your total expenses? If so, lucky you! It’s time for you to retire your debt, and plan for your retirement.
- Are your expenses higher than your salary? If so, how close are they? Are there small changes you can make to balance your finances? Try to figure out what you can change. Where can you save money? If you’re coming up short month after month, it may be time to get some outside help from a debt counselor or debt consolidator.