STEP THREE: Create a budget
Here is where setting priorities firmly is paramount. First and foremost, set aside enough money to meet your goals. This part must be automatic. Whether it is paying off debt, saving for emergencies, or saving for retirement, it works best if the transfer occurs automatically either directly out of your paycheck or right after the paycheck is deposited.
Lastly, decide how to spend what’s left. Perhaps you have less left over to meet your current spending habits – this may be a wake-up call that either your goals are unrealistic or those habits need to change. Also, the level of detail in how you budget your variable expenses is discretionary and situational. Some recommend completely budgeting every detail of every category down to the last cent, however, I do not. In my opinion, if a budget is too tight or controlled, it can create compliance problems and lead to secrecy or “cheating.” Some recommend leaving wiggle room by creating a “cushion” amount or “misc” category.
The overall goal is to ensure that one’s expenses are in line with priorities and not out of control. For the well-disciplined penny pinchers, a detailed budget is pointless because every expense is already minimized and scrutinized. Again, online tools can make this much less painful. Websites such as mint.com have very intuitive budgeting tools that allows you to quickly assess where you are in a monthly budget for each category and when you have exceeded the budget. Good luck!
Go to STEP TWO: Track Your Income and Expenses
Go to STEP ONE: Goals