Basic Money Management- Creating and Living on a Budget

by RC on July 14, 2009

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One of the easiest ways to control and manage your money is to create and live on a budget.

Unfortunately, creating and living on a budget is not always as simple as it sounds. For some reason, a budget has become known as the dreaded “B” word – and is something many people try hard to avoid putting down on paper and sticking to it. Perhaps it is the feeling of being constrained, or the feeling that you “earned” your money, so you can spend it however you want. But for a lot of people, using a budget is akin to self-deprivation.

It’s not that difficult in reality, though. In fact, creating and sticking to a budget can be pretty easy if you follow a few simple rules.

Figure out where your money is going.

If you haven’t been following a budget, you may not even know where your money is going.

Tracking a month or two’s worth of expenses from your receipts, bank accounts, and credit cards will allow you to see where your money is actually going. Are you spending a lot in just a few areas? Or is money leaving your account in small amounts- like a leaky faucet, drip, drip drip?

Examine your spending categories for areas you spend too much-and then reduce them.

Even if you cannot cut back on things like utilities, rent or mortgage, etc., you may be surprised that a lot of your spent money is hard to account for. You may be taking regular withdrawals from the ATM in cash, and might be spending it on a lot of different things. You don’t have to cut everything to the bone- in fact, if you trim your budget too much, you will find it hard to stick with your goal of managing your money wisely. So start slowly, but start somewhere.

Set a budget for each spending category, and stick to it.

After you set up your budget, it is important to stick to it. Make yourself (and your spouse or family, if you have one) a promise to try and stick to the budget you have set up.

Allow yourself from freedom.

Whether you call it an allowance, or fun money, you will have much better success with your budget if you have some freedom to spend money however you want. Putting a category in your budget for fun money, or “blow money”, as personal finance guru Dave Ramsey likes to call it, will allow you to spend money on things you want without “blowing” your overall budget, and without making you feel constrained.

Review your performance and revisit your budget on a regular basis.

Reviewing your performance is very important to sticking with your budget. If you don’t know how you are performing, you will lose interest pretty quickly- and will not not be following a budget fairly soon. After you are sticking with your 1st shot at budgeting, you can try to reduce your spending even more by trying to trim from some other areas.

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{ 3 comments… read them below or add one }

Megan July 23, 2009 at 11:34 pm

The problem with my budget is that I constantly overshoot it in some areas, and then try to make up for by being frugal in terms of food. My major weakness is shopping for clothes and shoes, and I plan to curb my spending in that area.

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Omar August 12, 2009 at 10:45 pm

I set up a mint account to track my budget. But I need to be more proactive and aware of spending money on dates and sweets.

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Mack jackson September 18, 2009 at 12:08 am

Thanks for sharing such great post, all are the perfect ways to creating proper budget and people should stick to their budget.

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