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Why do you need a budget?

Have you ever found yourself looking at your bank account balance wondering where your money went? The most common cause of financial problems is spending more than what you are earning. How can you avoid being in this state? Creating a flexible, sensible budget is the best way to ensure that you are in control of your money. A budget is simply a plan for how you will spend your money. It can help you restrict your spending, but it can also help you ensure that there is enough money to do the things that you want to do. You can think of it as a roadmap to help you carry out your financial objectives. 

How to get started

  • Build a starting budget using your best guess of what you spend in a month. Here are some categories you might use; books, personal expenses, rent, telephone and entertainment.
  • Track your expenses for a month or two (you can use a piece of paper, a computer spreadsheet, or budgeting app), so that you can correct any inaccuracies. You may be surprised to see where your guesses were higher or lower.
  • Once you have tracked your expenses for at least a month, total up all of your expenses and subtract them from your income. If you are spending more than you are earning, you will need to make changes.
  • Be honest about what a necessity is and isn’t. (Enjoying a Starbucks coffee every day is nice, but you could save yourself almost $80 a month by only having it once a week.) List any changes you plan on making in your budget.
  • Review your budget monthly to see if there are any changes you may need or want to make. 

Moving Forward with a Flexible Budget

In order for your budget to be useful, and not just a scrap piece of paper, you need to follow it. Recording your purchases at the end of the day should only take a few minutes. (If you use a budgeting app that links to your checking and credit card accounts and automatically imports and categorizes your purchases, the process is even easier.) If you are finding it hard to stick to your budget on a regular basis, some of your figures may have been unrealistic. Go back over your budget and make adjustments. Perhaps you realize you need to allocate more money towards books and school supplies and you can spend less money on clothing. The best budget is one that can grow and change to meet your needs.

So What Can You Do Now?

If you are not yet ready to delve into tracking your spending for a full month, try this one week simple tracking sheet. Your weekly spending habits can help highlight where you may need to make adjustments.

Looking for an app to help you out? Read this New York Times article that reviews some apps to track income and expenses.