How To Create A Solid Budget
Last time, I wrote about the quest for financial freedom and why it’s crucial to talk about it. Today, we’ll explore the first step in achieving financial freedom: creating a solid budget. Perhaps you’ve tried budgets in the past, but just could never seem to keep them going. Or maybe you’re new to making a budget. Whatever the case, this eBillme article is sure to point you in the right direction.
Analyze Your Spending Habits
You can’t know how to get where you’re going if you don’t know where you are. That’s why it’s strongly recommended that you first analyze your spending habits before you write a budget. Begin by gathering up any records of recent transactions – receipts, checking account statements, anything you can get your hands on!
After you’ve accumulated a good portion (3 to 6 months) of your financial history, separate the records by month and categorize your expenses. Here are some sample categories to get you started:
- Housing
- Groceries
- Electricity
- Water
- Garbage
- Transportation
- Insurance
- Medical
- Pet Care
- Phones
- Household Supplies
- Fun Money
- Area of Focus (more on this later)
Your expense categories will surely differ somewhat from those listed above. The next step is to add together all your expenses in each category and get on a plan to reduce down each expense to a reasonable level. If you’re not sure how much to reduce, try lowering your expenses 5% each month until you can go no further. This is a great rule of thumb for pushing your costs down while transitioning gradually so as not to traumatize your lifestyle. Be sure to take a look at eBillme’s cash back program for online purchase discounts and other ways to save money. Every little bit helps!
What’s Your Income?
The other important factor in creating your budget is your income. As a rule, you should never spend more than you earn. So figure that into the equation when you are writing your budget! What we’re looking for here is to create a large gap between what you make and what you spend. If that gap is small, you won’t have much wiggle room for your area of focus.
You’re probably wondering what I mean by “area of focus.” The area of focus should be one of your largest expenses, and works toward major financial goals such as eliminating debt, building an emergency fund, or investing for retirement. If you’re unsure what you area of focus should be, Dave Ramsey’s 7 Baby Steps will help you find your place.
Another idea for those of you who have a variable income is to spend this month’s income on next month’s expenses. It may take a while for you to get to that point, but trust me, it’s worth it! That way, you’ll know exactly how much money you have that you can spend month to month and not be concerned about over-drafting on your checking account!
Day By Day Budgeting
People are largely confused when they hear about writing a budget every month. Some don’t understand that “monthly budgeting” is not merely working one day out of thirty on the budget, but instead continually keeping your finances in check. That’s why I like the phrase “day by day budgeting.” Yes, you should sit down once a month and write a comprehensive budget. But to stick to that plan, you’re going to need to continually assess and evaluate where you’re at in the month. This process should include things like checking your grocery expenses to make sure you haven’t spent over half your allowance within the first few days. You get the idea. Minimal work on maintaining your budget each day will keep you sane.
I ask you: what kinds of tips and tricks do you use to budget your money? How have you used eBillme’s services to save some extra cash? Let us know in the comments, we’re looking forward to your input! And be sure to stay tuned for my next article on dramatically reducing your expenses and raising your income!
