How To Budget Money

By using our site, you agree to our cookie policy. How article, how To Budget Money can trust that the article was co-authored by a qualified expert. This particular article was co-authored by Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. The authors of this article cited 9 references, which can be found at the bottom of the page. A budget could help you crush your outstanding debt, take charge of your financial future and even become a happier, more relaxed person.

Depending on your circumstances, a proper budget may not require that you spend less. Instead, you may simply have to make more effective financial decisions. Gather what you need to start tracking your spending history. Collect past bills, bank and credit card statements, and receipts that can allow you to put together an accurate estimate of how much money you spend every month. Consider using software to help you budget. Personal finance software is quickly becoming the new trend in finance.

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These programs have built-in budget making tools that can help customize your budget, along with analytics that help you project cash-flow into the future and better understand your spending habits. If you choose not to use a budgeting software, you can determine your own budget by using a simple spreadsheet. Your goal is to chart all your expenses and income during the course of a year, so make a spreadsheet that shows all your information clearly, allowing you to quickly identify any areas where you can spend smarter. Create a column of expenses and revenues in column A. You can list either revenues or expenses first, but try to group expenses together and revenues together to avoid confusion. You may want to group expense together with category headings.

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Now that how To Budget Money have determined how much discretionary money you should have leftover every month, fixed expenses are those that stay relatively the same each month and are required parts of your way of living. People are more aware of their spending with cash. Add up your variable expenses to find what expenses can be cut. It sounds fairly obvious, such as eating out less often. Thanks to all authors for creating a page that has been read 1, fixed expenses are expenses that remain how To Budget Money stable from one month to the next. It makes the at — you only want to include guaranteed money in your budget.

Decide whether you want to include items that are deducted directly from your paycheck such as insurance, retirement savings, or taxes. Document your historical budget data for the last 12 months. Add all of your expenses and revenues for the past 12 months, using data from your bank and credit card statements to provide an accurate representation of all of your revenues and expenses. Determine your overall monthly revenue history. Are you on a fixed salary where you know for certain how much you’re taking home each week? Are you a freelancer whose salary varies each month? Documenting a year’s history can help you get an accurate view of your average monthly revenue.

If you are a salaried employee, don’t factor in a possible tax refund into your overall income. Your monthly income should reflect only what you bring home after taxes. List all of your monthly expenses on the spreadsheet. What are the bills that you have to pay every month? How much do you spend every week on groceries and gasoline? Do you go out to dinner with friends every Friday night or to the movies once a week? How much money do you spend on shopping?

If your expenses are greater than your revenue, you are living way beyond your means. These include regular monthly expenses such as bills, insurance, loan debts, food, and necessary shopping items like clothing and household products. Items that fall into this category include savings, entertainment, vacation funds, and other luxuries. What is an example of a discretionary expense? Going to the movies definitely counts as a discretionary expense, since it isn’t a requirement to keep your house running or for getting you to work. Still, it’s not the only example that fits the requirements. A vacation fund definitely isn’t a necessity, like paying for gas or food.

Still, the phrase “discretionary expenses” covers several areas. Buying dinner, unlike buying groceries, does fit into the “discretionary expense” category. Still, it’s not the only one! Putting money into savings is tricky, since it’s seems like it would be a fixed element of your budget. Still, if you need to pay the gas bill, that is a necessary output of resources, as opposed to saving money, which is there in case you need to pay the gas bill in the future. All of these examples fit well into the category of “discretionary expenses. Unlike “fixed expenses,” these payments are not necessary, and often revolve around luxury, travel, and savings.

Read on for another quiz question. The history established in Part 1 will help you create an accurate preliminary budget. You should calculate your fixed expenses and revenue, then decide how you want to spend your discretionary money. Be sure to account for changes to fixed expenses, such as paying off a student loan or adding a payment for a new car. Set goals for the bulk of your discretionary spending.