5 Steps To Create A Perfect Budget

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5 Steps To Create A Perfect Budget

Getting your finances under control may seem like a daunting task, but the reality is that nobody is going to create a budget for you. You know you need a budget and you plan to make one — tomorrow. But every day you wait is another day longer you’ll be in debt. So what better time than now to create a perfect budget and get your spending under control. These 5 simple steps to creating a budget will help you take control of your money and stop the mindless spending.

Step 1 – Spending Habits

Take a close look at your spending habits. Look at receipts, checking accounts, credit cards and other sources of cash to determine where your money goes on a day to day basis. It’s a good idea to look at at least 3 months worth of spending to get an average amount to begin with. Use a spreadsheet to compile your data and make things easier. If you’re the type of person who uses a credit card for most of your spending, you can most likely get a quick snapshot through your credit card companies expense analyzer.

Step 2 – List Your Expenses

Once you’ve analyzed your spending habits, sit down with a pen and some paper to make a list of everything you need to buy or spend money on in the next 3 to 6 months. This list should include things like new tires for your car, groceries, payments to credit cards, retirement contributions, and other planned expenses. Create another list for large expenses planned for the next 1 to 5 years. These lists will become your budget.

Step 3 – Do The Math

Take your budget from step 2 and figure out how much each item on each of your lists will cost you each month. For example, if you need new tires, take the cost of the tires and divide them by the number of months until you plan to purchase them and viola, you have the cost per month. That way, there are no such things as surprise major expenses – it’s all been accounted for in your budget.

Step 4 – Make Cuts

Once you’ve got your budget in hand, it’s time to remove temptations. Take a look at your purchases and your budget and eliminate anything that doesn’t land on both lists. If you find yourself unable to give up your surprise expenses that are needs rather than wants, it might be time to hide your money from yourself. That could mean stashing cash in the bank or leaving your credit cards at home. One of the easiest ways to keep your cash from yourself is by diverting it into a savings account automatically rather than into your checking account.

Step 5 – Live On The Budget

Now that you have created your perfect budget, it’s time to teach yourself to live on this new budget. The easiest way to do this is with envelopes for each of your major expenses, such as rent, groceries, etc. Each time you get paid, put money into each of the envelopes according to your budget. Once the money is gone it’s gone. This method will quickly teach you to live within your means by physically limiting the amount of available money.

Learning to live on your new budget can take some work but once you become accustomed to this new lifestyle you will get to experience the many benefits of living within a budget.