The term “budget” often conjures up images of complex financial documents. But it’s a simple, practical tool that can be used by individuals/households of all income levels to get and stay in control of their finances.
Start by adding up all your regular monthly expenses, including fixed bills like rent or mortgage, utilities, and car payments; as well as variable spending such as entertainment, eating out, shopping, and travel. You can use a budgeting app or spreadsheet, online template, or simply a notebook and pen to track your spending for several weeks to gain a clear understanding of where your money is going.
You should also consider identifying one-time expenses like holiday gifts, vacations, and other events that may happen only once or twice a year. Estimating these costs and spreading them out throughout the year will help you budget for them in advance and avoid them catching you off guard when they arrive.
Once you have a total picture of your expenses, identify areas where you could reduce spending (and make room to save). It’s important to focus on those items that you can control, such as food, clothing and entertainment. Look at your credit card and bank statements to see where you might be overspending and find ways to trim those habits.
For those items you can’t control, such as debt payments and insurance premiums, work on developing a plan to pay them off over time. This will not only minimize the amount of money you owe, but will keep you from paying excessive interest and fees and avoid unnecessary penalties for late payment.