What is Budgeting?
Budgeting is how you decide to spend your money in the future to make sure your expenses are less than your income.
Identify Income and Expenses
In order to budget effectively, you need to understand what your net income is and prioritize your expenses. Income is the money you receive through work and investments. Gross income is your total income before taxes and other deductions, while, net income is the amount of money you have to spend after taxes and other deductions.
Expenses can be identified by understanding your needs versus wants. Needs are items that are essential to your daily life such as food, housing, transportation, utilities, etc. Wants are items that you would like to have, but may not need at this moment. As everyone’s needs and wants are different, take a look at the spending categories below to take into consideration when creating a budget.
Managing Your Money
Budgeting is most effective when allocating a specific amount of funds to each category. How much you allocate depends on your needs and wants. Begin by identifying your fixed costs like rent, utilities, and insurance and subtracting those from your net income. The amount left over is then available for you to spend on other expenses.
Tools to Track Your Budget
Tracking your expenses is essential to making your budget work for you. This is a great way to determine if your expenses are in line with what you have projected for each spending category in your monthly budget. There are several ways to track your spending to enhance your own financial awareness including mobile apps, Excel spreadsheets, and money management websites. Find a method that works for you and start identifying your spending habits.
For a great resource on budgeting, try this budgeting tool. For more information on how to track your budget, please see this budgeting course. If you are looking for additional information about money management, you can learn more here.
Strategies to Save Money
There are lots of ways to save money. Even the smallest change in spending habits can have a large impact on your personal finances. Here are some ideas.