I know a lot of people that want to save money this year and I think that is great! The goal may be different from person to person. Maybe you want to get out of debt, save for a vacation, or get that new TV you have been wanting. Whatever your reason is, the best way to even start saving for your goal is to make a budget.
This doesn’t have to be complicated. It can be as simple as you want to make it. You can create weekly, monthly or even yearly budgets. My advice would be to create a monthly budget. It is the easiest one to keep track of and you can have them vary between the winter and summer months when your utility costs will be different. Choose a way that will be easy for you to stay organized. You can use a simple Excel spreadsheet or use budgeting software. I recommend using Mint.com or LearnVest as they are easy and free. You can even go old school with a pen and paper if that is your style. Now that you have your options, let’s sit down and see how to make a budget for each month. I will use examples along the way.
1) The first thing you are going to do is calculate how much revenue you have coming in each year after taxes. Take into account all types of income: your salary, social security checks, retirement checks, money from stocks, bonds, or CDs, etc. Use only money you know will be coming in, not income that you might make. For our example we will make $50,000 a year. Now that you have your final number simply divide it by 12 and that is how much money you earn each month ($50,000/12=$4,166 per month)
2) Now go through all of your bills. You will want to take the last 3 months worth and come up with an average for each type of bill. We will call this our Necessities section and narrow it down from there: Phone ($100), rent ($1,000), insurance ($80), water ($40), electricity ($150), gas ($150), car payment ($200), student loan ($100), groceries ($200), clothing ($50), gas for car ($70), internet ($40), etc. Now take your total for all of these bills and subtract it from your total income number. For the example, our total for necessities is $2,180. Now subtract this number from our monthly income: $4,166-$2,180=$1,986.
3) Now that all of our necessities are taken care of, we can go through and budget for our luxuries. Luxuries are things we love having but don’t necessarily need to survive. Some of these would be going out to eat, movies, video games, toys, your daily latte, etc. Now you can divide that remaining $1986 that we had left among these luxuries. I would also advise putting some of that money into a savings account for emergencies. You might even want to consider paying more on your credit card or any other loans you may have to get those payed off faster. Trust me, it feels great when you no longer have those hanging over your head.
If you notice that you don’t have enough money left to cover these luxuries, that is when you need to start cutting back. You don’t have to have cable or the trendiest clothing but you do need to make sure you have enough money to cover your necessities. This is where you really need to look at ways you can save. Use coupons at the stores, shop around for a cheaper phone provider or cheaper insurance. This is a really basic overview of how to make a budget.
You can get into more detail with the budgeting software that is available and get more advice on ways you can cut back .Making a budget is the easy part. The hard part is sticking to it. DO NOT spend more money then you have coming in. It may sound like common sense but this is where people get in trouble and in debt. If you stick to your budget and put some of that extra money in savings, you will be so glad you did. When you can pay off your vacation without charging it to your credit card, you will know that all of that hard work and sacrifice was worth it.