To Do: Build a Budget
Bud… Budge… Budget. It’s a hard, yet necessary, word to spit out. I’m still getting used to it.
I guess you could call me a recent grad. (How recent is recent, though? If 2012 counts, then I’m in.)
Graduation is scary—not because there’s a chance you could trip over your feet center stage, but because the bubble you live in is about to pop. Life—and all its responsibilities—are about to hit you in the face. One of those responsibilities is money. No longer will a beautiful allowance show up in your bank account for your few expenses, but instead, a measly income will appear for your many.
Without Mom and Dad and that cushiony bubble of being a student, you actually have to manage that incoming money, which includes tracking the outgoing money. It’s called… a budget.
When I left home for my new job, I couldn’t see clearly through my tears of stress. Mentally stuck on campus, I was being mind blown by the cost of life. I mean, I was aware the expenses existed, but the numbers kept on adding up—rent, water, trash, electricity, cable, Internet, car insurance, renter’s insurance, gas, cell phone. I could feel my throat constricting. I. Couldn’t. Do. It.
Get a grip. That’s what I had to do. Managing money is intimidating, but it’s 100 percent doable—and it’s pretty darn necessary if you want to be in control of your dollars. So I un-constricted my throat and dived into a digital finance manager, excel sheets, worksheets and a homemade bill binder.
I know I’m not the only one whose instinct it is to run for the hills when budget comes up in conversation. According to a Gallup survey, only one in three Americans prepares a detailed household budget.
There are tons of tools—online and other—to help you figure it all out. And if you’re not a recent grad but someone who just wants to get those dollar signs situated, a budget’s a budget—it doesn’t discriminate, and everyone should have one.
Like Dave Ramsey, a personal finance expert, says: “A budget is telling your money where to go instead of wondering where it went.” So, here are tips to boss around your bank account, aka how to create a budget:
1. Figure out how you’re spending your money. Check out your expenses from last month and then categorize each transaction. Some basic categories, but definitely not all possible ones, you can start with include:
- Housing, including rent or mortgage
- Car payments/insurance/gas
- Health/medical expenses
- Groceries/restaurant expenses
- Credit cards/loans/other fees
Categories are not limited—they should be customized to your own spending habits and responsibilities. The role of sorting is to wrap your head around where your money is going right now.
2. Calculate your total monthly income after taxes and subtract what you spent from month start to month end. Did you overspend? That’s a big red flag—you need a budget. (And, really, you need one whether you overspend or not.)
3. Analyze your spending from last month to see what categories are flexible—what can you cut back? You’ve got to pay rent on the first, but do you have to eat a Chipotle burrito bowl every week? Didn’t think so. It might help to separate your categories into essentials and nonessentials, or extras.
4. Set goals and adjust your expenses. Be realistic when you’re setting budgets for each category—you need to eat (groceries), but you probably don’t need that chevron maxi skirt (shopping/clothing).
5. Write it down as you go. You need to track your spending over the next month (and on) to understand, modify and stick to your budget. Try not to stress the first month. It takes a little time to get it down; give it at least two or three months to settle in and become habit.
6. Don’t ditch the budget after you think you know it. By sitting down each month and comparing your actual expenses to what your goals were will help you stay on track.
I figured out by trial and error that a budget doesn’t have to be dizzying; it can be pretty darn simple. You just need a little knowledge and a little patience.