A Realistic Look at Creating - and Sticking to - a Budget

It’s easy to lose track of where you spend your money. Few of us can remember where every dollar goes. Knowing how and where you spend can help you gain better control of your money and manage it successfully.

The best way to accomplish this is to implement a spending plan, or budget. A budget tells exactly how you spend your money. As a result, you can see where to make changes to help better manage your finances.

A good spending plan can provide the discipline needed to help you pay bills on time, cut expenses, and eventually begin saving and investing by:

• Revealing your financial condition by comparing earnings to expenses
• Helping you avoid overspending and showing where you can save
• Helping you save for emergencies or anticipated needs
• Establishing financial control and direction
• Helping you achieve your financial goals

Making a budget isn’t hard, but you must maintain a disciplined attitude to stick to it. Here’s how to get started, but remember, at a minimum, you should follow a budget at least for a few months until you have fully adjusted your spending habits.

• Use the budget system that is easiest for you, whether it is computer software, budget worksheets, or old-fashioned pen and paper Click here to access our online budget tool.
• Calculate your monthly income from all sources
• Group your expenses according to fixed expenses, which rarely change from month-to-month (such as rent, mortgage, insurance, utilities, cable, Internet, and loan payments), and variable expenses, which usually change each month (such as clothing, entertainment, and recreation).
• Total your income, total your expenses (fixed and variable), then subtract your expenses from your income.

If you end with a positive number, congratulations! Do double-check your work to make certain you included ALL your expenses, no matter how big or small. If you still have more income than expenses, look for ways to increase the amount paid toward any debts you have or increase the amount you put away into savings.

If your expenses exceed your income, you should take action. First, try to cut expenses. You may not be able to reduce fixed expenses, but you can adjust your variable expenses where you have more control. For example, try cutting costs in areas such as restaurant meals, recreation and clothing. Next, consider ways to supplement your income — or do both.

Need more help? Consider a nonprofit credit counseling organization like InCharge® Debt Solutions if you continue to have trouble controlling your debts and adjusting your spending habits.