How to Manage a Budget
Control Your Budget For The Better
Budgeting is one of the most important skills you can develop, but unfortunately, many adults don't have a clue how to do it. And that leads to a common financial problem – overspending. The worst situation is spending more than you make every month, but going paycheck to paycheck and spending just as much as you earn every month isn't much better.
Once you learn how to budget, you can take better control of your finances. Here's how to create and manage your budget to start saving money and keeping your spending under control.
Choose Your Budgeting Method
The first thing you need to do is decide how you're going to budget, as there are quite a few different methods available. The old-school approach would be to write everything down, or you could try a more technologically advanced method by using either a Word document or an Excel spreadsheet for your budget.
The most efficient method, though, is undoubtedly using one of the many budgeting apps, such as Mint, that are available. These simplify budgeting for you and make budget management much less work.
Instead of checking all your expenses yourself, you can connect an app to your credit card accounts and bank accounts. It can then automatically pull your transaction history from those accounts and let you know how much you're spending everywhere. That certainly beats adding up your grocery expenses yourself to see how much you spend on food per month.
Figure Out a Monthly Ratio
Once you've gotten your budget started, you need to determine how you want to allocate your money every month. A popular method is the 50/30/20 approach, where you allocate your money in the following fashion:
- 50 percent of your monthly income goes towards your necessary living expenses, such as rent, food and utilities
- 30 percent of your monthly income goes towards the things you want but don't need that month, such as evenings out or stylish new clothes
- 20 percent of your monthly income goes towards some form of savings or debt repayment
That's a good ratio that will allow you to pay your bills, put a solid amount of money away every month and still get some enjoyment out of your money, as well. However, you should adjust your ratio as necessary to fit your lifestyle and your current financial situation.
For example, if you have short-term debt, such as credit card balances or online title loans Texas, then you may need to shift more of your income towards that, at least temporarily. In situations like that, it can save you more money in the long term to pay down your existing debt as soon as possible.
You don't necessarily need to focus all your spare income towards paying off debt, though. Perhaps you get a title loan buyout that results in your debt having a lower interest rate. In that case, it may be better to pay it off over time and save some money, as well.
Keep Track of Where Your Money Goes
A budget is no good if you create one, and then forget about it. You don't need to micromanage every transaction you make, but it is a good idea to check your budget and compare it to your spending every couple months. Here's how:
- Check your budget compared to how much you've been spending.
- See if your spending falls within your designated ratios and if there are any areas where you've been spending carelessly.
- Consider if you need to adjust your ratios or if they're fine where they are. Look for areas where you could spend less.
If you went with one of those spending apps, then you'll have an easier time doing this, because all the information you need will be right there.
Let Your Budget Evolve with You
Your budget isn't a static item that you adhere to for decades with no changes. As your income changes and you pay down certain debts while potentially taking out different types of debt, your financial needs will be different.
That's why it's a good idea to consider changes every time you go over your budget and how you've been spending. You may find that you've been wasteful with your disposable income, even if you've been sticking to your ratios. Or, you could find that you've been trying too hard to cut costs at the expense of your personal life.