Every financial expert will recommend you have a budget, but most people just kind of “wing it,” and keep a general idea in their head of how they need to spend their money. This is a big mistake. A budget is a map of your financial present and future, and if you do it correctly, you can create a budget that allows you to keep all your bills paid, as well as save for retirement, a rainy day, and allow a little extra for you to spend on something just because you want it.
There are many programs that will create a budget for you. Do an internet search of “budget creating software,” budget creator,” or “budget apps,” and you are going to get so many hits, your head will spin. Are all of these programs equal? Of course not, but since one big part of creating a budget is to save money, check out the free ones first. They don’t cost you anything, and if they don’t work to your liking, you can always go and find another one. If you really want to track your money on an ongoing basis, spend the money on programs like Microsoft Money or Quicken, both of which you can link with your bank, and have budget programs built in. While those programs are great for doing that, since you are just starting out, try the free programs first just to get a feel for it. Once you see how much a budget and keeping track of your income and expenses helps you plan for your future and stick to a plan, then invest in one of those programs and go wild, because they can track everything if you set them up correctly.
Most of the programs work by asking you a bunch of questions. They will ask about your income, your taxes, your fixed expenses (think rent/mortgage), necessary expenses (utilities, insurance) and what else you spend your money on. Many will also ask you what your goal is in creating a budget, like “how much money would you like to save in a year?” After asking you all kinds of questions, the program will generate a budget for you. Remember, you want to create this budget, so be honest and as accurate as you can when you answer the questions, otherwise the program doesn’t have the correct information and your budget will be useless.
The best programs allow you to look at the software generated budget and make adjustments when you see where you are possibly spending too much money, like eating out too often. The biggest trick is to look at the budget as your friend, not the enemy. Make sure that the budget you create is something you can live with, otherwise you won’t stick to it. One way I always recommend doing this is by building into your budget “entertainment expenses.” That’s a fancy way of saying money you can spend on anything you want, whether it is going out with friends, or buying a new pair of shoes that you want but don’t really need. Psychologically, when we know we have that “entertainment money,” we don’t feel so constricted by the budget, we can’t stick to it. Some weeks, you might not even use your “entertainment money.” You can put it in savings or under your mattress and let it add up for something really special that you want. The point is it will make it so much easier to stick to your budget. And don’t forget, review it at least twice a year (quarterly would be better) to see if you are sticking to it, if it is working for you, and if there are any tweaks you can make to it.
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