Creating a budget is an important part of managing your finances and your credit. If you don’t monitor how much you’re making and how much you’re spending, you’re doing yourself a disservice. Without a budget, you’re more likely to spend more and save less, which, over a lifetime, could wreak havoc on your finances.
If you don’t have a budget now, it’s probably because you didn’t know where to start, you thought that budgeting is hard, or you felt that you didn’t need a budget (until you read the last sentence). So, we’ll make this easy so that you can quickly see the benefits of budgeting.
How much cash do you have?
The fun way to dive into budgeting is to start by counting your money. This includes money in various bank accounts, money that you’ve lent to people, and money around your home. Make an inventory list of all of your money.
How much do you spend each month?
Now, on to the not-so-fun part. Let’s add up your regular expenses to determine how much you spend each month. This includes rent/mortgage, water, electric/gas, and even your cell phone, groceries, and automobile fuel. Don’t forget to add the expenses that you may pay for less often, like insurance.
How much income do you earn each month?
Let’s talk about the money that you’re bringing in on a regular basis. How much money can you expect to earn each month?
Your budget
You just created a budget! Congratulations!
Yes, there’s more that needs to be covered about your budget. But, just by following the three simple steps above to create your budget, you’ve provided yourself with a clear view of your finances. You can see how much money you currently have and how much money you’re expected to spend and earn over the next month.
You’re now ready to move on to the next phase and actually budget by strategizing to determine the best way to disperse your cash and income between your expenses.