Saving money is easier when you know how much you’re spending and what your priorities are. Budgeting can reveal recurring expenses that could be cut (like a monthly gym membership you never use or a streaming service that costs more than you’re watching).
Start by compiling your fixed and variable expenses. Remember, a budget should be flexible to accommodate changes in your life, like an unexpected bill or new job promotion.
1. Track your spending
Before you can start saving, it’s important to understand where your money is going. Tracking your spending can help you pinpoint where you may be overspending. You can use anything to record your expenses, including a pen and paper, a spreadsheet, an app or the budgeting tools available in your bank’s mobile or online banking.
Start by listing your fixed expenses, which are less likely to change from month to month, like rent or mortgage, utilities, insurance and debt payments. Then list your variable expenses, which could include things like groceries, gas and entertainment.
You might decide to categorize your expenses into needs, wants and savings and debt repayment. This way, you can make a clear plan for how much to devote to each category each month. Ideally, your budget should leave room for at least some of your wants, so you can treat yourself to something fun occasionally.
2. Make a list of your expenses
Make a list of all your regular monthly expenses, using an app or spreadsheet or even just pen and paper. Include fixed expenses like rent and utilities, as well as variable expenses like food (both groceries and restaurant purchases), clothing and entertainment. Check your bank and credit card statements to ensure that you have accounted for everything.
Once you have a complete list, categorize the expenses into needs, wants and savings. Determine the average amount spent on each of these categories month to month, then set a goal for how much you want to spend on wants and savings each month.
Budgeting forces you to take a close look at your spending habits, which can help you identify areas where you are overspending and cut unnecessary costs. For example, paying for a gym membership you never use or a streaming service you rarely watch can add up to hundreds of dollars per year. Trim these expenses to leave room in your budget for more important items like debt repayment and savings.
3. Set a budget
If you’re a budget newbie, it can be tough to know where to start. One good way is to list all your regular monthly expenses, including those that are fixed (think rent or mortgage, insurance, transportation and utilities), as well as variable expenses (like food (groceries and dining out) and entertainment).
Once you have a complete list of your monthly expenses, subtract them from your total income. This will give you an idea of how much you can realistically set aside for saving or debt repayment each month.
Keep in mind that many expenses aren’t monthly (think yearly fees like car maintenance, eye exams and holiday shopping) or can be reduced by planning ahead and purchasing items in bulk. It’s also important to have an emergency savings fund.
4. Review your budget regularly
A bankruptcy lawyer in Harrisburg, PA might tell you that once you’ve established a budget, it’s important to review it regularly. This can help you see if you are keeping to your spending limits and make necessary adjustments, or if you need to shift your priorities.
To review your budget, start by gathering all of your financial documents and bills. Then, list your expenses – including fixed costs such as rent or mortgage, car payments, and utilities, and variable expenses like groceries, gas, and entertainment. Record each expense using whatever method works best for you, from pen and paper to a spreadsheet, or an app or tool such as the free spending tracker.
After evaluating your budget, you may decide that you need to change how much you spend on fun things like coffee or entertainment. Or, you might choose to save more money in that category so you can reach a longer-term goal such as buying a new car or paying down your student loans.
