At the start of February, we proposed a “Track Your Spending Challenge” to encourage a first step toward better personal finances. As February comes to a close, it’s time for a new challenge! Hopefully, you have had a lot of practice and a new awareness of where your money goes. Now it’s time to take the March Challenge: create and follow a budget.
Why Do I Need a Budget?
Every day, thousands of consumers face financial crises. These can be caused by personal or family illness, or loss of job, but the most common cause is overspending. By tracking your spending you will know exactly where your money is going. A budget can direct your efforts efficiently so you can get out of debt, rebuild your credit or be able to save for retirement. If those aren’t enough reasons, check out these 12 reasons budgeting can improve your life.
Create & Follow a Budget Rules
1. Find a budgeting tool.
There are plenty of tools available to create a budget. Look no further than ACCC’s budgeting worksheet in PDF or Excel file. Here are a few other ways you can create your budget:
- Use a mobile budgeting app
- Create your own in Excel
- Create your own in a notebook
- Find templates online through a search engine
The right tool will make your goals, like paying off credit card debt, easier to accomplish. Choose one tool to start with and try another one next month if you don’t like it.
2. Enter all your budget line items: income and expense categories.
Use your February Challenge notes or look at your monthly bills, receipts and credit card statements to get an idea of the budget categories. Here are some common ones to get you started:
- Wages or salary
- Rent or mortgage
- Personal Care
You may not account for everything in your first budget. There are usually small, infrequent expenses that are easily forgotten. Just make sure to include them in the next month.
3. Set spending limits for your budget categories.
Each budget item needs to have an amount attached to it. That way you will know how much you can spend on groceries, clothing and other items while still being able to pay for everything else. Take care of your necessities first and then assign whatever is leftover to less essential or more flexible categories, like entertainment or clothing. If you are trying to pay off debt, prioritize a larger monthly payment.
4. Review the budget throughout the month.
It’s best to review your budget at least once before the end of the month to make sure you are on track. If any overspending is happening, you will be able to adjust other categories to make up for it.
Some budgeters choose to review half way through while others opt for a weekly check-in. If you are in a relationship, make sure you are both participating and agreeing to the budget as well as the review process. Since money can cause rifts in relationships, always be communicating with one another.
5. Close out the budget for March.
When March ends, you can officially close out the budget by reviewing all the numbers. Did you overspend? Did you overestimate a cost? Any surprise expenses give you trouble? Any fights over the budget?
A lot can happen to a budget in a month! Each month can be a learning experience. It’s important to keep improving and working hard to reach your financial goals.
To speak to a credit counselor today about budgeting and managing your finances, call 800-769-3571.