If you think of the word budget as a synonym for deprivation, think again. Making a budget can actually free you up to spend money on the things that are important to you because you will no longer be wasting it on things that aren’t. The steps below can help you plan and make the most of a budget.
Your first step should be to find out how much you are spending. You can do this any way that is comfortable for you. Many people prefer to use apps these days, but you can also simply write down whatever you spend as long as you are honest and consistent. It will take a few months to get a really good handle on what a regular pattern looks like. With this information, you can then turn to the next step.
Where are you spending too much money? Food is a common area where people overspend, buying too much at the grocery store or eating out too often. Maybe you have a gym membership you don’t use or you tend to shop for clothes you never wear. Once you’ve identified the big problems, dig a little deeper into creative ways to save. Could you run your heating or air conditioning less often? What about trading in your car for a cheaper one or moving into a less expensive apartment?
Having a Debt Plan
If you have debt, now is the time to tackle it. One good way to approach this is by focusing most of your energy on one debt at time, only paying the minimum on the others. However, it’s also a good strategy to see if you can get the interest rates down on any of those debts. You might be able to take out a personal loan from a private lender and pay off a credit card bill, then turn your attention to paying off the loan with a lower interest rate.
Once you start following the budget, you can make little adjustments along the way. Keep an eye out for a couple of common errors. One is forgetting to account for things that only happen a few times or once a year, such as buying a birthday present for someone, setting aside enough for Christmas shopping, or even getting your hair cut. The other is trying to force yourself to stick to a spending plan that is too draconian. You need to allow some room for indulgence.
Building Good Habits
With your newly transparent view of your spending, you can start to build good habits. If you aren’t already saving for retirement, you can max out your 401k, or you can open your own retirement account. You can also start working toward other savings goals, such as a down payment on a house. Continuing to read articles about personal finance from time to time or even a book on the topic can help you learn more and make better decisions about managing your money.