You’ve probably heard the term “budgeting” before and not given it much thought. Yeah, people budget for things, so what? However, if you’re not using an actual budget, a document with your finances on it, then you might be mismanaging your own funds. Having a working budget with your income and expenses is a very important aspect of taking control of your own finances.
Here’s how it works: when you know how much money you’ve got coming in every month, you can put that in the “income” column. Then, count up all the bills you have to pay. This includes utilities, internet, your phone, and your car payments, and your rent or mortgage.
Then, write up the stuff you need to buy but isn’t locked in price, like food, gas, clothing, and general groceries. From there, you should (hopefully) have a bit leftover.
When you see how much extra money over your expenses you’ve got, you can think more clearly about how you’re using it. Give every dollar in your paycheck a job before you even see it. You know that some of it is going to your bills, and some of it is for essentials like food.
However, with a budget, you can see just how big of a drain certain food expenses or clothing brands can be on your finances.
This allows you to think about where you want your money to go. Maybe you can be content with eating out less and cooking simple meals at home more if it means you can add more to your retirement savings. Maybe you can buy fewer video games or electronics if it means you have more money for groceries.
Budgets also help you see if you’re barely scraping by. If you would have to essentially not buy groceries just to save some money back, you need to make a change. Whether this means increasing your income or decreasing your expenses depends on your living situation. Maybe you’re long overdue for a promotion at work. Maybe you’re living too far above your means.
In either case, a budget lets you look critically and clearly at your own finances. You can discover if your phone bill is disproportionate to the rest of your bills. You could find out you’re spending way more than you thought on your weekly dinner dates. In any case, drafting a budget is the first step in getting a solid grip on your financial life.