I’ve been posting a lot about saving money and making money, but not that much about managing money. One of the most important skills you need to master now (and for the rest of your life) is budgeting.
Luckily you already have a budgeting kind of cheat sheet in the Expenses worksheet (in the Useful Links tab). A budget not only considers your expenses (like utilities, food, rent, savings, etc), but also when those expenses occur and when you get paid. Here is a sample budget I have put together using Excel.
| August: | |
| Payday 1 | |
| Entertainment | XXX |
| Car Insurance | XXX |
| Groceries and Gas | XXX |
| Miscellaneous | XXX |
| Total | XXX |
| Payday 2 | |
| Power | XXX |
| Groceries and Gas | XXX |
| Water/Sewer/Trash | XXX |
| Phone | XXX |
| Rent | XXX |
| Savings | XXX |
| Total | XXX |
The first step to creating a budget is to list all of your recurring expenses (things that come up on a regular basis every month). List what the expense is for, when it is due, and how much. Then arrange your list in order by date due. If you are paid biweekly arrange your bills by when they are due and how much you can pay…there is no such thing as paying a bill too early! Always try to pay bills early or at the least on time. Sign up for automatic monthly payments so you don’t forget a bill (plus many places offer discounts if you pay in this way). Your total amount should equal exactly what your paycheck amount will be (every penny should be accounted for).
If you aren’t able to anticipate exactly how much you will make (maybe you’re a waiter or your employer doesn’t keep you on a steady schedule) then keep that list of expenses arranged by due date, and on your payday pay as many of those bills and expenses as possible. If you end up with some “extra” cash throw it into savings (This “extra” cash is beyond what you already determined needs to go into savings each month).
You will also have bills that are annual, or semi-annual. I like to figure out those costs ahead of time and divide by the number of months until the bill is due. I add that monthly total into my savings and keep that money in my savings account until I need it. Some people like to keep two or more savings accounts. One might be for emergency expenses, another might be irregular expenses (annual and semi-annual), while another might be for a vacation or a special purchase. This can be a useful tool so that you can pay attention to if you are on track with your financial goals.
The main problem people have with budgeting is that they make the budget, but then they don’t stick to it. Paying for everything with your debit card can often lead to mental math (although I am great at math it is easy to forget about certain purchases). Unless you are very diligent with balancing your checkbook as you use your debit card you may fall victim to faulty mental math. Other people are just spenders and feel constantly tempted. One useful strategy many people successfully use to make sure they don’t overspend is to use envelopes. First you pay all your recurring bills (like utilities and rent and putting money into savings), then you take out cash for the other things you will need to purchase when you are running around town. Divide the cash into categories (i.e. food, gas, clothing, gifts, etc.) and put the money into labeled envelopes. When your envelop is empty, it’s empty. Only take with you the envelopes that you will be using for that day and only spend the money in each envelop for its intended purpose. Don’t try and sneak buying coffee at Starbucks from your clothing envelop! I have found this to be very useful. If you end up buying everything you need from one category and you still have money left over put that money into savings (piggy banks or pickle jars are useful until that amount gets to be big enough to take to the bank).
Keep in mind that budgets are living documents. Just because it is written down does not make the budget perfect. Expect to find out that you may have forgotten about or weren’t aware of certain expenses. It is okay to edit your budget to address new needs or to better fit your situation. Over the years you will have to adjust the budget many times, and in the beginning you will be adjusting your budget on a regular basis until you finally get things down.
Last budget tip: put your budget up in a place you will see every day! This way you will remind yourself of how you want to spend your money. It is also a good idea to put up in writing you financial goals right next to your budget. The display should look something like this:
| August: | ||
| Payday 1 | ||
| Entertainment | XXX | |
| Car Insurance | XXX | |
| Groceries and Gas | XXX | |
| Miscellaneous | XXX | |
| Total | XXX | Goal #1: I will pay for all my tuition without using loans (only grants, scholarships, and cash)! |
| Goal #2: I will have a $1000.00 emergency fund in one year! | ||
| Payday 2 | Goal #3: I will be able to pay for Spring Break in Florida without getting into debt! | |
| Power | XXX | Goal #4: I won't have to ask Mom and Dad for money this month! |
| Groceries and Gas | XXX | |
| Water/Sewer/Trash | XXX | |
| Phone | XXX | |
| Rent | XXX | |
| Savings | XXX | |
| Total | XXX |
