Something as simple as a budget is a very powerful tool if used properly. Sometimes we must go back to the basics with finances. Americans in general are not great savers. New data from a recent study by U.S. Bank states that only 41% have a budget set in place. While to some this is surprising to others It all makes sense.
When we talk about budgets there are a few ways we can tackle it. The first and most basic way is simply using a piece of paper. The second way is using some form of an excel program on your computer. The newest way and most streamlined in my opinion is that of online budget tools. For this there is Mint and You Need A Budget (YNAB). Be on the lookout for a future review on these as well. With creating a budget, we simply are creating a category for each thing in our lives and asses how much to spend in that category. So, a few examples on a monthly budget might be.
- Income ($2,000)
- Food ($200)
- Rent ($700)
- Internet ($55)
- Savings ($100)
Now that we talked about the basics of a budget and the different approaches to making a budget lets discuss why you need to add this tool to your financial tool box. First, just like if there was a leak in a pipe, we must understand where the leak is in our spending habits. A budget allows us to see the bigger picture with our money habits. Particularly are spending and saving habits. Ever ask yourself at the end of the month “where did all my money go”? You are not alone I often use to ask myself this very question.
Once we start a budget we are giving every dollar of ours a job. From this we can accurately track at the end of the month how much we spent in each category. Now you will see where all that money is going. Some categories like eating out will probably surprise you. Other categories you might have already known. Now comes the fun part. We can now honestly look at the big picture and see all the money that comes into our lives and all that leaves our lives. At this point, we could asses each category and see where we can make cuts. Do you really need to spend $200 a month on eating out? Could you instead spend $100 and save the other $100?
Remember in this stage it is very easy to get discourage due to all the bad spending and realizing you save very little money if any at all. I encourage you to remember this “No Shame No Blame”. You are taking the first step to fixing your financial situation and achieving the life you want. Once this step is tackled you will more than likely be saving more money and cutting back that spending. I like to reevaluate my budget to see if there is any unnecessarily spending once a month.