Some people are naturally good with their money. They spend less than they make, and they’re able to put money away without the temptation to spend it – but not me. I’ve always been bad with my money; it controlled my life for years.
Six years ago, I found myself in a desperate situation: I was 24 years old, broke, and living in my parents’ basement. My part-time job paid me $9/hour, and my $20,000 in student loan and credit card debt never seemed to go away. In fact, I could barely make the minimum payments.
The day my life changed was when I couldn’t even afford to take the bus to work. I realized that my debt was holding me back from the life I wanted for myself.
The first thing I did was learn to create a budget.
I know what you’re thinking – budgeting is boring and cumbersome – but stay with me, because if you need to do some serious damage control to your personal finances, chances are that simply by creating a budget, you will get to where you want to be.
Budgeting isn’t as bad as you think. It doesn’t mean you have to cut out every single fun thing you will ever do in your lifetime. In fact, it’s the opposite! It’s about taking control of your money, understanding where your money goes, and realizing what you truly value in life.
When I was in debt, I spent money I didn’t have. I wanted to experience everything, and have fun. You only live once, right? Money is made to be spent! I found a way to justify every single purchase, without thinking about the repercussions. Then, one day it hit me: I was literally spending my future away.
Here are 5 simple steps to help you create a budget that works:
Step 1: Figure out what you want
Make a list of your short-term and long-term financial goals. Do you want to get out of debt, buy a house, or take a vacation? Understanding why you are budgeting will help you focus on what you need to do to achieve your dreams.
Step 2: Determine your monthly income
Calculate how much cash flow you have coming in on a monthly basis. Aside from your full-time job, you should factor in money made from a part-time gig, freelance work, government assistance, child support, or any other form of reliable, steady income.
Step 3: Track every dollar you spend
Grab your smart phone (or a notebook) and spend an entire month tracking every dollar you spend. Every time money leaves your possession, you need to record it. You might be surprised at what you find! It might be hard to admit that you spend $60 a month on tanning, or $50 on the gym pass you don’t use, or $300 on gas for your car – but it’s all valuable information that you will need.
Step 4: Figure out how much you are spending
Start by subtracting your monthly spending (step 3) with your monthly income (step 2). The money left over each month should be going towards both your short-term and long-term goals.
If you find that you are spending more than you make, or don’t have enough money to put towards your goals, you can either cut back on your spending, or look to increase your income.
Step 5: Revisit your budget often
Because your expenses will most likely vary from month to month, revisiting your budget often is a good idea. This will ensure that you are on track with your goals.
Budgeting isn’t a dirty word, and it isn’t about penny pinching and deprivation! It’s about the freedom knowing that your money doesn’t control your life. You decide where and what you spend your money on – and that’s a very liberating feeling.