How to make a budget

Surprises are nice, but not when it comes to your money. If you’re scrambling to pay the bills each month, you would probably benefit from having a budget. Below are three methods for helping you organize and manage your monthly expenses.

Fixed and Flex

The first budgeting technique involves grouping your expenses into two categories—“fixed,” which are must-haves like food and utilities; and “flex,” the nice-to-haves like vacation or dining out Keeping these definitions in mind, follow the four-step process below
  1. Gather 6 to 12 months of bank statements, receipts and other financial records.
  2. Separate those expenses into “Fixed” and “Flex” columns.
  3. Add up your monthly “Fixed” expenses, then subtract the total from your monthly income.
  4. What’s left over is your “Flex” spending money.
50/30/20 rule
Another budgeting technique is the 50/30/20 rule. It involves dividing your monthly income into three ”buckets”:
  • 50% (or less) goes to necessities such as housing, student loans and utilities. These are expenses you have to pay every month.
  • 30% (or less) goes to nice-to-haves, such as entertainment, hobbies and travel.
  • 20% (or more, if possible) goes toward savings and paying down debt.
The 50/30/20 rule  can be adjusted based on your short- and long-term goals, but be careful about confusing “nice-to-haves” for “necessities.” Several dinners out each week and unlimited data plans may be nice to have, but they aren’t essential.

Tracking

Tracking takes the most time, but it provides the greatest insight into your spending habits.
Use a spreadsheet, an online service or, if you prefer to go “low tech,” a notebook and pen will work just fine.
First, create columns for your spending categories (e.g. groceries, gas, utilities, medical, entertainment, and child care). Add a “miscellaneous/unexpected” and a “savings” category as well.
Next, divide your monthly income among the categories and then pay your bills/save accordingly. It’s important to list all items and subtract the amount you spend in each category so you know where your money is going. Once a category is “out of money”:
  • Stop spending in that category if possible, until you get your next paycheck
  • Consider making trade-offs by moving money around from other categories
Your money is stretched in many directions.  Daily expenses, entertainment, life events and long-term goals—all competing for the same dollar. Budgeting can help ensure you’re covering the necessary monthly expenses, saving for the future and—maybe—have some extra cash to reward yourself for your good work.
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