Budgeting

How many of us believe that the reason we are always short of money at the end of the month is because we do not earn enough? Well, not surprisingly, most of us do. What if we told you that there was one magical tool that could solve all your problems, that would help you spend within your means and in fact, could even help you put some savings aside every month. That tool is called budgeting.

Budgeting has one simple key idea – spend less than what you earn. All other key ideas on budgeting follow from this simple idea. Let us see what steps you need to take in implementing this key idea.

1.    Know your expenses: The very first step you will need to take is to know exactly what you are spending on. You could note down the amount you spend on every item for the next couple of months or you could take the easy way out and study your credit card or debit card statement. This will give you an idea of how much you spend in different categories. If you use cash for making most of your payments, you could note down the expenses for one week and then multiply that by four to get a rough estimate of how much you spend in a month.
2.    Plan your expenses: Now, sit down and think of all the things you need to spend on for the next two to three months. These could be things that you actually have to purchase like new tires, pay for school fees, family vacation or they could be certain financial plans of yours like paying off a credit card or starting an emergency fund. Estimate how much you will be paying or are willing to pay for each item on your list.
3.    Work on your expenses: If you find yourself spending more than what you earn, go through the list one more time and see if all are necessary expenditures. Eliminate all those expenses that are not needed (cable TV, newspaper or magazine subscriptions and so on). If you cannot eliminate any expenses, perhaps you can reduce the amount you are spending. Instead of going out for lunch everyday, try to pack some from home or try carpooling instead of taking your own car to work everyday.
4.    Spend less, save more: Once you start watching your expenses, you will be pleasantly surprised as to how your income can not only cover all your expenses but that you are actually left with a little something at the end of the month. Open another savings account where you can keep your extra cash. Another excellent idea to put aside some more savings is to start every month by moving some money in to the savings account. In fact, you can request your bank to set up an automatic recurring cash transfer that transfer a specific amount of cash from your checking account to your savings account at the beginning of every month. Assume your salary is less by that much and then plan your expenses.

Follow our golden rule of spending less than what you earn and we promise you, you will never fall short of money again.