Apr 13 2009
Money Management 101- Create and Live on a Budget
One of the easiest ways to control your money and practice smart money management is to create and live on a budget. Unfortunately, creating a budget is not as simple as it sounds. For some reason, the dreaded “B” word is something many people try their best to avoid. It’s not that difficult in reality though, in fact, crating a sticking to a budget can be pretty easy if you follow a few simple rules.
Figure out where your money is going.
If you have not been following a budget, you may not even know where your money is going. Tracking a month or two’s worth of expenses from your receipts, bank accounts, and credit cards will allow you to see where your money is actually going. Are you spending a lot in just a few areas? Or is money leaving your account in small amounts like a leaky faucet, drip, drip drip?
Examine your spending categories for areas you spend too much-and reduce them.
Even if you cannot cut back on things like utilities, rent or mortgage, etc., you may be surprised that a lot of money is hard to account for. You may be taking regular withdrawals from the ATM in cash, and be spending it on a lot of different things. You don’t have to cut everything to the bone, in fact, if you trim your budget too much, you will find it hard to stick with your goal of managing your money wisely.
Set a budget for each spending category, and stick to it.
I’ll talk a little more about actually setting up a budget in the near future, but after you set up your budget, it is important to stick to it. Make yourself (and your spouse or family, if you have one) a promise to try and stick to the budget you have set up.
Allow yourself from freedom.
Whether you call it an allowance, or fun money, you will have much better success with your budget if you have some freedom to spend money however you want. Putting a category in your budget for fun money, or “blow money”, as personal finance guru Dave Ramsey likes to call it, will allow you to spend money on things you want without blowing your overall budget, and without making you feel constrained.
Review your budget and track your performance on a regular basis.
Reviewing your progress is very important to sticking with your budget. If you don’t know how you are performing, you will lose interest pretty quickly. After you are sticking with your 1st shot at budgeting, you can reduce some of your spending even more by trying to trim from some other areas.
