A budget is an important tool to help manage your debt. Not does budgeting help you get out of debt, it can also help you maintain a debt free life. Many people avoid budgeting their money because they assume it will put limitations on their spending. That’s not necessarily true. A budget is a way of practicing some much-needed self-discipline with your spending.
- Realize the importance of having a budget. The simplest way to think of a budget is as a plan that dictates how you spend your money. You make plans for other aspects of your life. Why shouldn’t you plan your spending? A budget can help you realize sooner when you don’t have enough money to cover your expenses. That gives you some time to come up with an cheaper alternative to making ends meet.
- Gather cancelled checks, bank statements, and receipts. Don’t try to make your budget completely from your memory. If you do it that way, you’re more likely to forget some numbers. Instead, use cancelled checks, bank statements, and receipts to help you figure out what you spend money on during the month.
- Calculate your regular, dependable income for the month. When it comes to the income portion of your budget, use all your reliable sources of income you receive during the month. If you have an irregular source of income, like gifts from family member or friend, don’t include it. It’s safer to base your budget on the income you can depend on.
- Total your expenses. Once you’ve calculated your total income for the month, then write down your monthly expenses and add them up. It’s important that you list all your expenses, without leaving anything out. The more accurate you make the expense section, the more accurate your budget will be. You’ll be better able to see if you have enough income to meet your expenses.
- Calculate your net income. Once you’ve totaled your income and expenses, it’s time to calculate your net income. That’s the amount of money you have left over after all your expenses have been covered. Subtract your expenses from your income to come up with your net income. Ideally, your net income should be a positive number.
- Adjust your expenses to raise your net income. If your net income is negative, you must decrease your monthly expenses to ensure you have enough money to make ends meet. Leaving your expenses as they are, you’re setting yourself up for financial failure. Go through your expenses, and figure out which ones you can cut to make more room in your budget.
- Give your budget a few months to work. Budget’s don’t always work correctly the first time you make one. Instead, it might take a few months for your budget to work as you adjust your spending and tweak your budget to fit your financial life. If your budget doesn’t work the first time around, don’t give up. Make some changes to it and try again next month.