Most of us were never taught how to create their own budget. Unfortunately, people go off to college and end up spending more money than they should very frequently. Creating and sticking to a budget is the biggest step to protecting yourself from debt. Since we live based off of our own incomes, the budget section comes first in my life binder!
Creating a budget
Typically, I create my monthly budgets during the last week of the current month or on the first day of a new month.
Creating a budget is easy.
- Estimate the first month
- Spend how you would normally spend
- Evaluate at the end of the month
- Create new budget -- reducing or increasing areas where you were dramatically under or over your budget
- Commit to sticking to your revised budget the next month
Tracking your expenses
When I was younger, my grandmother told me to track all of my purchases and expense for a year. It is important to know where your money is going. After the first month of tracking my expenses, I realized I was spending too much money eating out.
SAVE RECEIPTS. Do not throw away any receipts until after you have recorded the expense. I also keep receipts for returnable items until the items re no longer able to be returned.
Always pay yourself before spending the money left over after bills. In fact, view your savings account as a bill in itself. The most common budgeting rule is the 50/20/30:
- 50% of your budget goes towards essentials (rent, transportation, utilities, groceries).
- 20% of your budget goes to personal financial obligations (student loans, savings, etc.)
- The leftover 30% is what you live off of (flexible spending).
Personally, the 50/20/30 rule is hard to stick with. As a college student, my income isn't as stable as someone who works full time. Also I've found that the essentials take more than 50% forcing me to adjust the other two categories. If you, like myself, feel like it is taking forever to save any money try the 52 week challenge. At the end of the year you will have $1378. Best part of all -- with my checklist, you can start or pause whenever you would like. How does it work? Each week you put away a dollar for the number of weeks (week 1 = $1, week 2 = $2, week 3 = $3, and so on). I, personally, recommend starting backwards. (week 1 = $52, week 2 = $51, week 3 = 50, and so on). I found that it is more encouraging because you make the larger dent in your savings at the beginning. It is also easier because if something comes up, you at least know that you will be putting in less money the next week.
I showed you my budgeting section of my life binder. Let me know in the comments the budgeting rules you follow and how you manage to keep it all together!