A Personal Budget in 5 Easy Steps
According to a survey by the Ohio Credit Union League,
20% of Ohioans are unsure how to create a monthly budget. While some effort is
necessary, garnering a better understanding of your cash flow is an important
step to strengthening your family’s financial situation.
We suggest the
following steps to establish a basic budget:
Step
One: Keep track of your income and expenses for a couple of months. You need an idea of
what a “typical” month is like for you. For cash expenditures, keep receipts in
an envelope you carry with you every day. Then go back to categorize and total
the receipts at the end of the month.
Step
Two: Lay out your budget. In the “expenses” part of your budget, you will be
accounting for two major types of expenses: fixed and variable. Fixed expenses are
set amounts you pay every month, such as rent, car payment, and utilities.
Variable expenses include discretionary items, such as entertainment and
clothing. Write down all the necessities so you know how much you have left for
discretionary spending.
Step
Three: Pay yourself each time you receive a paycheck. Payroll deduction or
direct deposit can help you stick to the savings habit. No matter how modestly
you begin, the important thing is to start saving and to include it in your
budget. Even if you feel like you can’t save enough to make a difference, do it
anyway! You’ll be establishing a savings habit that will be invaluable when you
reach a point in your life when you have more to save.
Step
Four: Evaluate your spending. You may need to trim expenses. Take a good
look at where you spend money, and cut out unnecessary items. Even if you
cannot eliminate any large expenses, you may be able to cut several small
items. Every little bit helps. Try making yourself stick to a “waiting period”
on purchases. If you see something you think you can’t live without, put it on
hold instead of buying it on the spot. If you still have to have it after 24
hours, go back for it if you can really afford it.
Step
Five: Don’t overlook big, once-a-year expenses. Holiday gifts and
vacations can quickly turn into budget-killers if you do not plan. To help,
divide what you spend on such items yearly by 12 and add this expense to your
monthly budget. Also, budget a little each month to save for insurance premiums
and car repairs if you want to avoid draining your savings account.
Remember: Don’t be too hard on
yourself.
Don’t make your spending limits unreasonable. Leave some room for unplanned
expenses.
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