"A budget is telling your money where to go instead of wondering where it went."
- Dave Ramsey
A friend of mine was sharing with me how much he makes a year but was angry with a realization he had the other day. "Allen," he says, "I just found out that I make $45,000 a year, but that I only have $238.53 in my bank account. Why don't I have $45,000 in my pocket? Or at least half of that!"
When I was in college, I too had this realization. I told my roomate that I felt like I was just a middle-man for companies. I get paid only to hold that money for a few days before I give it to Verizon, the electric company, and other companies that I have to pay on a monthly basis. Although, I won't go over how to stop being a 'middle-man' during today's blog (or getting out of the Rat Race as Robert Kiyosaki would say), I do know that budgeting is the first step to taking control of your personal finances.
The following 5 steps will help you budget a bit better.
1. Start by knowing how much money you make a month, on average
For some of us, our monthly income is the same every month, but this is not true for everyone. Start by putting down how much money you make a month and if it's not a number that is constant, then just use an average.
2. Use basic categories to track your expenses
Before you start to jot down all the expenses you have on a monthly basis, first start off with the basics. Below is a list that I use when creating my basic categories:
- Auto & Transportation
- Bills & Utilities
- Education
- Entertainment
- Food & Dining
- Gifts & Donations
- Health & Fitness
- Home
- Personal Care
- Shopping
- Travel
3. Break down the basic categories into subcategories
The more detailed you are with your budget, the more you'll understand where your money goes and where you want to allocate your money. From the basic categories that you created, create subcategories to track each transaction. Here's an example of the subcategories that I use:
- Auto & Transportation
- Gas & Fuel
- Auto Insurance
- Car Wash
- Maintenance
- Bills & Utilities
- Electric Bill
- Phone Bill
- Water
- Internet
- Education
- Student Loans
- Books
- Entertainment
- Movie Theaters
- Music (Yes, I still pay for music)
- Concerts & Shows
- Food & Dining
- Fast Food
- Restaurants
- Groceries
- Gifts & Donations
- Presents
- Donations
- Health & Fitness
- Gym
- Doctor
- Dentist
- Sports Team
- Home
- Rent
- Decorations
- Home Improvements
- Personal Care
- Hair Cut
- Spa & Massages
- Shopping
- Clothes
- Desired purchases (tablet, laptop, etc.)
- Travel
- Timeshare
- Hotel
- Food for Travel
4. Look first at where your money went
Before you begin putting targeted amounts next to each category, first find out what your spending habits look like. Most bills and payments that we make are the same, for the most part, so those can stay constant. However, you do want to find out how much you are spending on clothes, a hair cut, fast food and other expenses that might change every month. You might want to look at the last three months and see how much you were spending on each category. Then, you should continue into the final step.
5. Decide where you want your money to go
5. Decide where you want your money to go
If you truly did this exercise, you might already have gotten depressed before you got to this final step. Most people realize later in life that they are spending more money than what they make. This is the main reason why you might feel that you're struggling to make ends meet every month or every week. This is the same reason why you feel like you never have money. You're probably spending more than what you're true means are. If this is the case (and even if it isn't), you want to place controls and decide how you want to spend your hard earned money.
As I mentioned in my last blog, this will not happen overnight. Take the time and have the discipline to do this consistently for at least a year and you will start to see positive changes. It's not how much money we make but how much money we actually get to keep.
Was this blog helpful? Comment.
Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.
As I mentioned in my last blog, this will not happen overnight. Take the time and have the discipline to do this consistently for at least a year and you will start to see positive changes. It's not how much money we make but how much money we actually get to keep.
Was this blog helpful? Comment.
Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.
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