Everyone has a budget. If you decide that you dont need that four dollar cup of coffee from Starbucks and opt for McDonalds instead, thats a budget. Budgets are used to help you climb out of debt, or save money with which to invest later on. Setting up a budget is fairly simple. Sticking to a budget is a horse of a different color.
First you have to know why you want to budget in the first place. Trying to alleviate debt? Saving for a new car or a dream vacation? In school on a limited income? There are a thousand reasons to budget and knowing your reasons is the first step in any budget plan simply because it gives you a tangible goal to shoot for.
How much do you spend in a month? Sure, youre counting your rent or mortgage, you food and utilities, etc. But to you count the bottle of Coca Cola that you buy everyday at lunch and another on the way home? At a dollar a bottle or more that adds up to about $15 a week or a couple of hundred dollars a year. Track your spending for a month or so and get an accurate picture. This is the best way to find out what areas that you are overspending.
Reducing both your mandatory and discretionary expenses come next. How much are your deductibles on your auto insurance and co-payments on health insurance? Can they be increased to lower your monthly payments? How many credit cards do you have and what are the outstanding balances? Can you consolidate your cards into the one card with the lowest interest rate? Instead of renting can you buy a home and start building equity? Mortgages can be obtained for not much more than rent payments and you cant build equity in a rental.
Living inside of your budget can be uncomfortable and difficult but it is possible. The biggest secret to understandingbudgeting is to understand everything about your finances and debt. Before you can control your spending you have to understand where the money is going.