5 Tips on How to Set a Budget

Set a Budget

When some people hear the word “budget” they feel that it’s a limitation of what they can spend. But in fact, budgeting helps you prioritize your spending and manage your money. By planning and monitoring your budget, it will help you identify wasteful expenditures, adapt as your financial situation changes, and achieve your financial goals. A budget also helps you to avoid going into debt, and it helps you to save money.

1. Evaluate Current Spending
In order to create a budget, you first need to identify how you’re spending money now. First evaluate your current spending by writing down a list of all the expenses you have over the course of a month. This includes a mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college savings, and essentially everything you spend money on. The key for this process is to create a monthly average.

I like to use Excel to track our spending. If you aren’t familiar with Excel, then below are some examples of budget spreadsheets that will help you get started on how to create a budget.

10 Free Household Budgets
Free Budget Spreadsheets
Budget Worksheets

2. Total Monthly Income and Expenses
Once you place your current spending and income on a budget sheet, if the end result shows more income than expenses, you are off to a good start. If you are showing a higher expense column than income it means some changes will have to be made.

3. Make Adjustments
If you have accurately identified and listed all of your expenses the ultimate goal would be to have your income and expense columns to be equal. This means all of your income is accounted for and budgeted for a specific expense.

If you are in a situation where expenses are higher than income, then you need to look at your variable expenses to find areas to cut. You should be able to shave a few dollars in a some areas such as eating out less, cutting out cable, or not getting your nails done to help you get closer to your income.

If you feel you’ve cut everywhere you can, and your budget it still tight, then look for ways to bring in more income like selling items around the house, babysitting, or finding a part-time job.

If you have excess money in areas of your budget, plan to wisely use that money. The first thing you want to do is build up an emergency fund that is at least 4-6 months’ worth of your income. That way you can avoid using credit cards for car repairs, medical co-pays, or any unforeseen expenses. After you build an emergency fund, then prioritize the excess money to areas of your budget such as retirement, savings, or paying more on credit cards to eliminate debt faster, as well as saving for items you want.

4. Set Specific Short-Term and Long-Term Goals
Make sure to have specific short-term and long-term goals you want to achieve by sitting down and discussing with your spouse what it is you both want to work toward. This could be buying a new home, getting out of debt, starting a family, taking a family vacation, or purchasing a new vehicle. For our family, we regularly discuss our short-term and long-term goals. And many of the goals we work toward are things we want to do together as a family.

A big part of budgeting is assessing all your expenditures to see what can be cut and put toward your goals. Think about things from a cash perspective, especially the big-ticket items. The next time you want to splurge on an item, think about how many extra hours you’ll have to work to cover the cost. It’s important to also learn the difference between needs and wants. Aim to spend no more than 90% of your income. That way, you’ll have the other 10% left to save for the bigger goals.

5. Track Spending
Once your budget is created, then track your spending using a notebook or budget spreadsheet to make sure it stays within those guidelines. In order to not overspend, try using a cash-only budget. With each paycheck, take cash you will need during the month and place it in assigned envelopes. Paying with cash forces you to stick to your budget, and you will be more likely to carefully evaluate every purchase you make. You’ll also begin to ask yourself, “Is this in the budget?” and “Do I need this?”

A budget is something that will regularly need to be changed and tweaked. It is important to review your budget on a regular basis to make sure you are staying on track. You’ll be able to see where you did well and where you may need to improve. If you’re finding it hard to meet your goals, you may need to revise the budget to accommodate your needs.

What other tips do you have for how to set a budget?

And here are other budgeting articles:
5 Tips on How to Maintain a Budget
How to Effectively Talk Finances with Your Spouse

This post may contain affiliate links. Read my Disclosure Policy here.

10 Tips to Get Out of Debt

Get Out of Debt

U.S. households owe more than $11 trillion in debt in 2014, according to the American Household Credit Card Debt Statistic. In breaking it down, Americans owe more than $1 trillion in student loans, $850 billion in credit card debt, and more than $8 trillion in mortgage payments. Living with debt can be stressful, and it can take a toll on your health and relationships. And getting out of debt and staying out of debt is not an easy thing to do. Below are tips to help you start paying off debt so you can reduce the stress of being in debt and put yourself in a better financial position this year.

1. Adjust your attitude toward spending.
The only way to take control of your financial life is to fix the root problem, which is to change your spending habit and to stop living beyond your means. If you change this spending behavior, you’ll live without financial stress, and you will have a vastly richer life. Once you get real about your debt, then you need to figure out how much debt you really have.

2. Make a monthly budget.
Create a realistic monthly budget for your expenses. List all monthly bills and necessities, and make sure they are covered by your monthly income. Allow only the money remaining after the bills are paid to be spent elsewhere. Stay within your budget guidelines.

3. Use a cash only method.
Learn to use cash instead of credit cards. From each paycheck, take out cash and place it in envelopes specifically listed as mortgage, utilities, grocery, etc. Have one primary credit card and use it only for emergencies or major necessities. Put your credit card in a safe place, not available for everyday use.

4. Cut down extra expenses.
Prioritize which expenses are most important to you to keep, then decide what you can get rid of such as cable or additions on your cell phone.

5. Reach out to creditors.
Contact your creditors and try to work out repayment plans and to bring down high interest rates. Many creditors are willing to work with you in a manner that will help them get their money without having to resort to debt collectors.

6. Bring in extra money.
Look for jobs to earn money to pay down your debt. This may be watching children, delivering newspapers,or cleaning houses. Also look into selling your assets. Gather items throughout your house, determine what you can live without, and then hold a yard sale.

7. Chip away at the debt.
Rank your debt from highest to lowest interest rate. Pay off the highest interest rate credit card first. Any extra money you have, use it toward paying off debt until it’s gone.

8. Trim unnecessary spending.
Cut down on your discretionary expenses. This includes dining out, buying expensive new clothes, taking pricey vacations, and other unnecessary expenditures.

9. Become a savvy shopper.
Look for deals, bargains, and savings. You can save a lot of money if you take the time to shop around. But make sure only to buy things that you need and not just because it’s on sale.

10. Get Organized.
Getting your documents in order will help you pay down your debt. If the documents are all over the house in piles, you won’t even know what debt you have. Use a file folder system and tabs. Do this with your spouse so you both understand the system.

What tips have helped you get out of debt?

And below are more articles you might like to read.

how to set a budget

How to Set a Budget

how to maintain a budget

How to Maintain a Budget

how to talk effectively with spouse

How to Effectively Talk Finances with Your Spouse

This post may contain affiliate links. Read my Disclosure Policy here.