Budgeting 101

Page 5 of 11

Small chalkboard with the word budget written on it

Everyone needs a budget, regardless of how much money they have. Many people view budgets as boring and restrictive, but budgeting isn’t about restricting your money – it’s about helping you spend wisely to make sure your present and future financial needs are met. Here are some tips and tricks to help you create a budget that fits your priorities and lifestyle.

Know what comes in.

First, be realistic about your income. Don’t guess – know exactly what you earn from your salary, tips or other miscellaneous sources. If your income varies, monitor it for a few months and budget based on your lowest or average income.

Know what goes out.

Every budget (PDF) needs categories. If you’re not sure what to include, look back at the list you created while tracking your spending. Based on what you currently spend, you should be able to identify obvious patterns. Once you’ve assigned categories, estimate how much of your budget you need to allocate to them. Check out our sample budget scenario (PDF) to get an idea of what your budget could look like. To easily create your own budget, use our free online personal budgeting tool.

Look at your lifestyle.

What do you spend money on? Books, tuition, fees, food, transportation, clothes and entertainment are common expenses. No matter your spending habits, all expenses fall into two categories: fixed and variable. Fixed expenses are the same amount month-to-month, so they’re easy to plan for. Variable expenses change each month. These may include your grocery and fuel bills. Variable expenses may be harder to plan for, but they give your budget some wiggle room.

Be honest about spending.

Distinguish between your wants and needs. If an expense is necessary to live, like food, water and shelter, then it’s a need. But we have other needs besides those our survival depends on. For a college student, a textbook for class is a need. However, if you want to buy a new shirt like the one your lab partner wore yesterday, that’s a want and it may have to wait until later. Set your priorities and stick to them!

Get serious about saving.

Save your pennies and you could be a millionaire. OK, so you might have to save more than just pennies, but you can become wealthy if you pay yourself first. Savings should be a fixed expense, just like your car payment. Before spending a single dollar, set aside a portion as savings. Don’t be discouraged if you can’t save a fortune right away. Whether you can save $10 or $100 this month, it’s important to start now! You’ll be surprised how quickly your savings can grow (PDF). Making savings a habit is what counts.

Plan for the worst.

Save for unexpected expenses like new tires, car repairs or doctors bills. Having a safety net will make those unanticipated moments a lot easier to handle.

Save for the rest.

Save for big-ticket items rather than charging them to a credit card. You may have to wait longer, but it will save you money in the long run.

Tackle your debt.

Hopefully, you don’t have a lot of credit card debt; however, if you’ve racked up more than you intended, take care of it now. Stop using your card for every day purchases and save it for emergencies only. Always make your payments on time and pay more than the minimum payment. If you have multiple credit cards, use the debt snowball (PDF) to eliminate your debt. Want to save on interest? Pay a little extra on the card with the highest interest rate. Want pay off debt quickly? Focus on paying off the card with the smallest balance first. Then be a deadbeat. A deadbeat is what the credit industry nicknames those who don’t carry balances from month to month.

Pay with cash.

For a while, pay for everyday items like lunch, coffee or gum with cash. If you always pay daily expenses with a credit or debit card you may not “feel” like you’re spending money. Handing someone cash may make you stop and think about the importance of the purchase.

Don't forget the fun!

Forgetting to include money for entertainment is a classic budgeting mistake. Most of us have to work to live, but we don’t have to live to work. All budgets should allow a bit of fun and flexibility! If you find that your budget is a little tight, learn to cut corners. Look for free entertainment like movie nights on campus, concerts or community events and festivals. The possibilities are endless.

Know your limits.

Find yourself with money burning a hole in your pocket? Leave it there! There’s one thing that all financially successful people have in common; they live below their means. Don’t spend every penny you have and definitely don’t rely on credit cards to make ends meet.

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