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Budgeting 101

by David Sung

Budgeting Basics

A budget is an estimate of income and expenditures for a set period of time.  Living on a budget doesn’t mean you have to cut back on all your fun spending, or that you have to become a penny pincher. It’s simply a way for you to meet all of your financial needs without going into debt. Creating a budget can help ensure you have funds for monthly expenses, as well as control costs for problem areas such as entertainment.

To get started creating your budget, you will need to begin tracking your daily, weekly, and monthly expenses.  A great way to start keeping track of your spending is to create a budget spreadsheet or use one of the many free templates you can download online. Tracking your first month’s expenses will help you create a budget benchmark and identify areas where you can cut spending.

What Items Need to Be Included in Your Budget

  1. Monthly income
  2. Fixed expenses: These expenses could include rent, cell phone bills, utilities, and any other expenses that will remain somewhat constant month to month.  If you can, create another fixed expense area every month which will go to savings for a rainy day or retirement fund.
  3. Flexible expenses: These expenses could include groceries, gas, dining out, entertainment, and any other expenses that may fluctuate month to month.

After you‘ve determined how much money to set aside for your fixed expenses, you can start planning your monthly budget. Figure out an average amount you will spend on items such as groceries, gas, and clothing, leaving a little wiggle room in some spending areas that may fluctuate more than others. This will largely be determined during the first month. It’s important to keep meticulous records of receipts. You will thank yourself later.

Using the fixed vs. flexible budgeting method will help you categorize your wants vs. needs expenditures. For example, if you need to spend money on groceries (a flexible expense), you can downgrade your cable channel package to reduce your monthly cable bill (a fixed expense) and allocate the money you save toward groceries.

Holding Yourself Accountable

It is important to be honest with yourself about your spending habits and account for what you realistically will spend in order to create an accurate budget that you can stick to. A budget will not be effective if you ignore it. One way to stay on top of your budget is to set a savings goals and reward yourself each time. Start small by trying to save a few hundred dollars by reducing either a fixed or flexible expense and setting aside the money saved.  Setting and reaching short term goals will make you feel more confident in reaching both short and long term goals.

You always want to leave some room in your budget for fun.  If you want to spend some extra money one month on groceries or a new video game, that’s fine, just make sure you have enough room in your budget to cut back on another are to compensate.   In the end, you will have not only what you want, but money in the bank as well.  

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