Managing your money is more than just banking. It's about being in control of your day-to-day finances, and finding ways to save for your goals.
The dreaded "B" word
Trying to get through life without a budget is like trying to drive a car with no steering wheel. You're always at risk of winding up in the debt ditch whenever you encounter a financial pothole.
That's because expenses tend to expand to match your income. Think about what you did with your last raise. You probably incorporated it into your spending and have forgotten what it's like to live on less.
To see if you're proactively managing your money, answer the following questions. The more vague or negative your responses, the more likely you need a budget.
- Where did you spend the last $100 you took out of a bank machine?
- Do you know what it costs you to live each month (to the nearest $50)?
- Are there bills that surprise you when they arrive?
- Do you have an emergency fund?
- Have you ever had to resort to your credit card because you underestimated how much you had in the bank?
- Do you have to check your bank balance often to see how much money is in your account?
Write it down
When you do your budgeting in your head, it's very easy to forget how much you've spent. You're always guessing how much you have left, making it tough to figure out how much you can spend.
Take control of your cash management with these first steps:
- For the next two weeks, keep a small notebook in your purse or pocket and jot down ALL the items you buy and the amount spent.
- Grab all your bills for the past two years. Divide your expenses into categories. Now add up how much you've spent in each category and divide the total by 24 to get your monthly costs. Those are your current expenses.
- For the next two months, make a list whenever you're going into a store. The next time you buy stuff you didn't have on your list, think about your spending patterns.
Drawing the blueprint
Now that you've figured out your expenses, it's time to calculate your income.
Your income is how much you bring in regularly: your salary, dividends, commissions, alimony, child support and/or pension. It doesn't include money you might get. So if your bonus isn't guaranteed, it doesn't count.
Add these figures up and you'll have your total income (i.e.: how much you have to spend each month).
To create the expenses side of your budget, draw up four columns on a piece of paper or a computer spreadsheet. Label them as follows:
Column 1: Expenses. List your categories - everything from your rent or mortgage payment to your clothing, food, utilities and medical costs. Don't forget a category for emergency expenses.
Column 2: Planned. Write in the amounts you're prepared to spend monthly on each expense.
Column 3: Actual. Each month, enter how much you really spent on each expense.
Column 4: Difference. This can be positive (if you didn't spend as much as you thought you would) or negative (if you spent more).