Lots of people find starting a new year is just the motivation they need to adopt some new habits. Along with my new year’s resolutions, I usually try to set some financial goals for myself each year, and then I create a budget to tweak my spending/saving habits in order to reach them.
Do you have a budget? If you do, good for you! If you don’t, then have you ever thought about making one?
Before I made my first budget, I was little confused about what a budget actually was. I now know that for the most part, a budget is simply a list of your monthly income and expenses that allows you to plan accordingly. It’s a tool to help you manage your finances. Either your budget is balanced, and you’re able to save money every month, or your budget is a mess, which means you need to cut some expenses to enable you to save money every month.
Personally, I use my budget as more of a general guideline than anything else. Seeing my money mapped out for the year allows me to make feasible saving goals, and it also gives me a place to refer back to over the year to see whether or not I’m on track.
I think making a budget is a lot easier than it seems. If you’ve never made one, here’s what I do:
Simply open up Excel and make a list in the first column of all of your monthly income (salary, etc.). In the second column, enter the amounts of your income after taxes. Add up the numbers to get your total monthly income.
Now, begin making a list of all your monthly expenses (rent, mortgage, car payment, cell phone bill, internet, anything you pay for on an ongoing basis) and the amounts that you owe for each bill. You may also want to estimate how much you stash away in your savings account or how much you need for spending money each month. Add up your monthly expenses, and subtract the total from your income. If the number is positive, you’re in good shape! If it’s negative, then you probably need to make some adjustments to your spending (or find a way to earn more income).
Once you’ve done this you have a foundation upon which to create a plan. If you need to cut out some expenses, you’ll at least know where to start. If you are having some financial difficulty, the best thing to do is start tracking all of your spending for the next month or so to see where you can cut down on your spending — you might be surprised at how much you’re eating out or spending on clothes. Also, see where you can reduce some monthly recurring expenses – perhaps you’re not using all those cell phone minutes you’re paying for.
To take this a step further, I normally use multiple columns across a spreadsheet (one for each month). I enter my income and expenses in each column and total each at the bottom — this allows me to plan for vacations, holidays, etc. Then I can see approximately how much I should be saving each month to reach my annual goal.
Obviously, I’m not a financial expert. But a lot of my friends have complimented me on how I seem to manage my money, so I thought I’d share some of my habits with you.
How about you? Do you have any budgeting tips? Will you be making a budget for 2013?
P.S. Did you know that the word “budget” comes from the French word bougette for “purse”? =)