How to Budget Your Money

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  • 5/31/11
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  • Budgeting Money
    Budgeting is an essential part of life unless you plan on living paycheck to paycheck. While some people find the idea of a budget constraining, spending money according to a plan and living within your means actually frees you from worrying about the state of your finances. Budgeting requires discipline; however, sticking to a spending plan will eventually become second nature. Budgeting will reward you with less stress, more harmony in your relationships and a healthy balance in your savings account. Living within your means can also help you reach goals such as buying a new house or funding a comfortable retirement. Budgeting is not difficult, but it does require discipline and following a plan.

    1. Categorize your spending. Make separate categories for items such as mortgage or rent, car expenses, insurance, satellite, telephone, Internet, groceries, gas, utilities and miscellaneous expenses.

    2. Track your spending for a month. Record every purchase, no matter how small. Keep all receipts, and total them at the end of the month. It is easy to underestimate how much you spend on a monthly basis. Seeing the total will bring home the reality of your financial situation. Be honest with yourself, or your attempt at budgeting will fail.

    3. Total your monthly income. Consider your paycheck, your spouse’s or partner’s paycheck and any other money you receive on a monthly basis. Record the numbers in a notebook, or use personal finance software.

    4. Total your expenses, and compare them to your monthly income. If you have been spending responsibly, your expenses will be less than your monthly income. If you have overused your credit cards, you are living beyond your means, and it is high time to get your financial house in order.

    5. Determine which categories of your budget are wants and which are needs. Some payments cannot be changed. Your mortgage and car payment will be the same every month. Adjust spending in the “wants” category. Many people spend a lot of money eating out at restaurants. Decide if you really need to dine out so often or if you would rather have that money in your savings account. Even categories that include needed items, such as groceries, can be pared down by paying attention to sales and using coupons.

    6. Evaluate your expenditures in the miscellaneous category. Decide if you really need to buy that morning coffee or purchase lunch every day. If you are serious about budgeting, you would rather see that money in your savings account.

    7. Look at expenditures in recurring payment categories. See if you can get a better deal with another car insurance company. Consider downgrading your satellite service or your cell phone plan.

    8. Pay for items like groceries, clothing and day-to-day miscellaneous items with cash. People tend to spend less when they can see the actual money they are spending.

    9. Make sure that you put 10 to 30 percent of your income in a savings account. Treat this portion of your income as a payment to yourself. Ideally, you will maintain six months’ worth of living expenses in your savings account in the event of job loss or other financial emergency. Get your savings account off to a healthy start by depositing your income tax refund into it.

    10. If you have a 401(k) plan, make sure that you contribute at least enough to get the company match. Preparing for your retirement is one of the most important steps you can take when budgeting.


    1.  How do you budget your money?

    2.  Have you tried any of these budgeting ideas?

    Image Credit: Gerard Van der Leun
    Written By: Shannon R

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