The Basics of Budgeting Your Money

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According to a recent study by, 67 percent of Americans use a budget. This is an improvement over a 2013 Gallup poll which showed that just 32 percent of households maintained a budget. The pandemic has no doubt changed these numbers. Fortunately, the basics of budgeting aren’t hard to grasp and it’s never too late to learn.

1) Spend less than you make

You’re going to have to do the math.

Keep track of your spending for a month or two and see what’s really going where, by category (e.g., rent, utilities, food, insurance, gas, clothes, credit cards, loan payments, etc.). Record everything, down to the dollar. If expenses are greater than your income, you’re living above your means.

2) Analyze your credit card spending

You can also look to your credit card balances. One sure sign that you’re spending more than you make is if you’re charging things to your credit cards that you’re not paying back by the due date. You’re either spending more than you can afford or you’re choosing to use money that could go toward your credit cards to go toward something else instead. Either way, it’s a recipe for financial disaster.

Pay more than the minimum payment.  If you’re only budgeting by putting down the minimum payment, you’re asking for trouble.  Even if you go months at a time without charging anything to your credit cards, if you’re carrying a balance that you’re only making minimum payments on, it’s costing you plenty in interest. Plus, it’s increasing your credit utilization ratio, which doesn’t do good things for your credit.

3) Tell your money where to go

Once you know where your money is going, tell it where you’d rather it goes instead.

Start with your fixed expenses, like your rent or mortgage payment, utilities, cell phone, auto loan, and insurance. Any expense that stays the same from month to month should go into this category.

Move on to your financial goals, like paying off credit cards or saving for an emergency fund. A minimum of 10 percent of your income is a good starting point. So, if you earn $3,000 a month, you’d assign $300 toward your financial goals.

Finally, look at what’s left after your fixed expenses and financial goals have been assigned. That’s what you have to put toward your flexible expenses, like food, gas, entertainment, and clothes. Every dollar must have a home. Once you calculate your income and expenditures, make sure that any left-over dollars have a place, like savings or paying off debt.

4) Keep track of your budget

You can do it old-school, saving receipts and logging your spending into a notebook or Excel spreadsheet. Or you can use a budgeting app.

Mint and YNAB all connect to your financial accounts. Every time you use your debit or credit card, the app assigns the transaction to a category, keeping track of your monthly spending as you go. They also allow for manual entry of your cash transactions.

5) Make adjustments to your budget

If something’s not working, it’s not because you’ve failed. Trial and error are the nature of budgeting.

For instance, if you’ve cut your flexible expenses to the bone and you’re still struggling, maybe now is not the time to put so much toward your financial goals. Cut that in half and put it toward flexible expenses instead.

If you still need more wiggle room, you can always try increasing your income and/or looking at which of your fixed expenses you’re willing and able to lower. Can you:

  • Find a cheaper place to live?
  • Get on a cheaper cell phone plan?
  • Find cheaper car insurance?
  • Refinance a loan for better terms?

Bottom line, you’re in charge. Tell your money what to do and, if it’s not working, try something else.

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