How to Budget

A budget is simply a spending and saving plan. It might not sound like the most exciting thing to do but it's vital in keeping your financial house in order. If you don't budget, you're practically inviting debt into your life, and making it impossible to save. The following steps will help you figure out where your money is supposed to go so you can control your spending accordingly.

Step 1 - A Brief Introduction

Create a budget every time you get money. Most people generally, do this once every two weeks but it can differ depending on your income as well as how much you spend. Either way, it's a regular interval and adjust your budget to fit your personal financial life. A good tip to remember is that don't spend any of your paycheck money until you've worked out you budget.

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Step 2 - Creating a list

Create a basic list of all the things you will need to pay for before your next paycheck. An example is shown belown:

• Rent/Mortgage
• Utilities
• Vehicle payments, insurance, maintenance (e.g. oil changes, tire rotations)
• Debt (credit card payments, student loans, doctor's bills)
• Gas
• Tuition and school supplies
• Food/groceries
• Health Insurance

Step 3 -  Anticipating the Costs

Predict how much you will need to pay for each item and write it next to the corresponding item on the list. If some payments don't fit into a weekly cost list, a fraction of the cost can be calculated into the list. 

For Example

If your rent is $800 due on June 1, you just got paid $700 on May 12, and your next paycheck will be $700 on May 26, it may be wise to set aside $400 from this paycheck for rent so that you only need to take $400 out of your next paycheck to pay for rent.

Step 4 - Calculating the Money

Calculate the total amount of money (we call this your regular expenses) and subtract it from your paycheck amount. If the result is a negative, then your are living way beyond your income and will definitely fall into debt. In order to get a positive number either cut your spending or get a higher paid job. 

However, if you have leftover money (positive result) then split it up into the following groups:

• Flex Money - This should be about 10-20% of your regular expenses. This is useful if something you need to pay for turns out to be slightly more expensive than you anticipated. Examples are gas prices or a flat tire.
• Savings - Ideally, this should consist around 30% of your paycheck, but even if it's 10% (if it's consistent), it is still pretty good. A good idea is to build up enough savings for an emergency fund (roughly 4-6 times your regular expenses), then start saving money to invest.
• Spending Money -  This consists of whatever is leftover after you subtract flex money and savings money. It's basically for whatever you want to spend your money on such as clothes, restaurants, movies, gifts and any item which is a "need". If you realize how little spending money you have, then you need to reduce your expenses.

 Step 5

All the money apart from your spending money should be put out of reach. The easiest way to do this is to leave all your money (except your spending money) into the bank. Withdraw all the spending money in cash and leave your debit/credit card(s) at home. Use the cash for anything you want making sure you make it to your next paycheck. You might not fancy carrying all the money at once but having physical cash can help you keep better track of your spending money than using a card.

Example Budget

Paycheck: $741.56

$741-$450 (Regular Expenses) = $291

$291-$45 (flex money, 10% of regular expenses) = $246

$246 - $150 (savings, 20% of paycheck) = $96 Money you can do whatever you want with until your next paycheck

BELOW IS A SIMPLE VIDEO ON HOW TO BUDGET