[W]hether you are just starting out on your own or just starting over, one of the most important things you can do is learn how to budget. Many people think they know how to budget, but they fail to stick with it. So, the goal is to not just create a budget, but to create one that works.
Know the Facts
The first step is to know your financial facts. How much do you earn each month? How much do your essential expenses cost? Essential expenses include things you can’t do without, like utilities. For many, this includes a cell phone plan, but it would not include cable TV or satellite radio. If you have a car payment, it goes in this category as well as rent.
When estimating changing expenses, always go with the highest amount. For example, groceries are an essential expense that many people try to budget too low to be realistic. While you may be able to find ways to save, be honest about how much you will spend. The water bill may fluctuate by a few dollars, so budget the highest it has been.
Think about other expenses and what you will want to keep. Don’t try to create a budget that is too strict to live with or you are setting yourself up to fail. For example, you may like to go out for coffee every morning on your way to work. If you try to do without that completely in your budget, you are likely to give in and go over your amount allotted for that week. Instead, try to cut back to every other day.
Live within Your Means
This is a tricky one, but an essential rule for living on any budget. Once you know what you have to work with, stick with it. For some who are spending more than they make, they may have to cut back or take on a second or third job. If you’ve set up a realistic budget, you may have to make some sacrifices, but they will be ones you can live with.
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