It is really important to make sure that you set a budget if you are finding it hard to manage your money. You need to be in control of your spending so that you are sure that you will not overspend and get into debt or not have enough money to pay your essentials. There are some simple steps that you can follow to set yourself a budget though and therefore protect yourself from being in this situation.
- Know how much income you have – it is important to start by making sure that you are aware of how much money you have coming in each month. This could be made up of a number of things. You may earn money and have a salary but also you could have other income such as interest, return form investments, pensions, benefits and other things. Only include things that you always get as an income rather than ad hoc income such as dividends from shares which you may or may not get. It is better to assume you will get less and then if you do get extra this will be a bonus. You may need to look back over statements form your checking account in order to do this.
- Differentiate between necessary and luxury spending – the next thing to do is to put together a list of all of the things that you normally pay for. Again, use your statements to help you and write down everything that you have bought over the last six months. This will take some time but you will soon start to see patterns and things that you buy regularly. To use this many months means that you will be able to include things that you do not pay for that often such as things you pay quarterly or six monthly. Do be careful to also include anything that you pay yearly. Once you have done this then you can split them into necessities and luxuries. This can be quite difficult, but think to yourself honestly about what you can manage without and what you cannot. For some people just rent, food and heat are necessities but for others they will need money for their children, they will want to buy gifts, make charity donations and run a car. Be honest with yourself about whether you really need the things or not or whether you can have less of them or spend less on them.
- Calculate what money is left for luxuries after buying necessities – at this point you should have a record of how much income you have in a month and how much you need for necessities. Hopefully you will still have some money left which you will then be able to use to pay for luxuries that you would like. Of course, you might want to use the money to pay off any debts that you have and to put some money into a savings account. You may want to split the money three ways or just use it for one of these purposes. It is worth deciding at this stage. At this point you will then be able to set your budget. You will know what money you will allocate to spending on what and this is something that you should set up so that you feel happy and not stressed at being able to follow.
- Keep a written record – it is well worth keeping a written record of everything. Not only of what you have discovered but also write down what you intend to do in the future i.e. how much you want to spend on necessities and how much on luxuries plus any goals for saving or repaying debt. Then you need to keep a written record each month of what you are spending and what money you have coming in so that you can make sure that you are never spending more than you can afford. It is important to do this because each month is never the same. Some people will be paid different amounts depending on how many days there are in the month. Some will have expenses some months and not others, so you need to see exactly how much you are spending to make sure that you are aware of your financial situation at all times.
- Constantly check bank account – you also need to keep a constant check on your checking account. You need to make sure that the transactions are going through as expected and that there are not any unexpected ones that you may need to be aware of or payday loans online being taken out. If a large chunk of money comes out, for example, you will have to change your spending pattern for the rest of the month in order to allow for this. This means that although you have set a budget and you know what you will be allowed to spend, you will need to remain flexible.
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