Building a Budget
Scenario: You’re out in the “real” world now. You are living on your own for the first time (college doesn’t count). You have a full-time job where you’re making your own money, spending your own money, and buying your own food (among other things). You furnish your apartment. You go out for drinks with your new colleagues or friends. You buy your best friend a birthday present, and a present for yourself while you’re at it.
Suddenly, you realize your money is quickly depleting and you don’t even know where it all went.
Has this happened to you?
If so, it’s time you created a budget and a plan (and stuck with it!). Budgets are crucial to managing your money correctly, especially when you’re first starting out. Instead of thinking of a budget as this evil thing that restricts you from buying what you want, think of a budget as a spending plan to guide your spending and saving so you can have the things you really want and that really matter to you.
The key to creating a effective budget and utilizing it to the fullest is figuring out why you need a budget:
a. Cut back my spending
b. Learn where my money is going
c. Achieve a goal (e.g. pay off debt, create emergency savings)
d. All of the above
Knowing this will allow you to choose the right kind of budget for you and easily create a spending plan. For example, the goals of someone who wants to cut back on spending versus someone who simply wants to learn or keep track of where their money is going are very different.
Managing your money doesn’t have to be so hard. You don’t need excel spreadsheets with a dozen tabs or papers spread out all over your kitchen table and a calculator. There are some great, user-friendly money management websites that allow you to get a grip on your money without obsessing over every penny. Some that I have experimented with include: Mint, Thrive, and Wesabe. These are all free and easy ways to get started with your first budget.
Now that you have the beginnings of a budget, assess where you might be able to cut back in unnecessary spending and where you could save more. Once you’ve done this, and you have a good plan for spending and saving, you have to follow it. Sticking to a budget is a whole other topic, which I will be discussing later.
Do you budget? And, if so, how do you go about doing it?