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Establishing a budget and sticking to it isn’t easy, but it’s the best way to be in control of your finances and make sure your money is going toward the expenses that matter most.
Follow the steps below as you set up your own budget:
- Make a list of your values. Write down what matters to you and put your values in order.
- Set your goals and write them down. Think about what you want to accomplish financially in the next three months, the next year, and the next three years.
- Determine your income. Figure your available income (the amount of your take-home, or net, pay). Do not include overtime pay: you shouldn’t rely on that as regular income.
Determine your expenses.
- Review your checkbook register, credit card statements, store receipts, and other records. Where is your money really going?
- "Fixed expenses," such as a rent, auto, or student loan payments, are easy to determine.
- "Flexible expenses," such as food, clothing, and entertainment, vary from month to month.
- Don't forget about expenses, such as taxes or insurance, which are billed quarterly, semi-annually, or yearly.
- Look into personal finance software programs (such as Mint) that offer a budgeting feature to help you track these expenses.
Create your budget.
- Think of your budget as a “spending plan,” a way to be aware of how much money you have, where it needs to go, and how much, if any, is left over.
- Your budget should meet your "needs" first, then the “wants” you can afford.
- Your expenses should be less than or equal to your total income.
- If your income is not enough to cover your expenses, adjust your budget (and your spending!) by deciding which expenses can be reduced.
Pay yourself first!
- Saving is a very important part of protecting yourself financially.
- Save as much as you can every month. Even a small amount can make a big difference if you keep it up.
- Establish an emergency savings fund large enough to cover three to six months of your living expenses.
- After you have an emergency fund, your savings can go toward meeting your goals.
- Be careful with credit cards.
Check back periodically.
- Be sure to review your budget regularly.
- Does the plan still meet your needs and help you achieve your goals? If not, make some adjustments or create a new budget that better meets your needs.
A budget calculator can be a helpful tool.
Learn how to manage your money.