Personal budgeting

Before you can establish personal budgeting goals, you must determine how you’re spending your money. Make a list of all your expenses and divide them into the following categories:

• Fixed Expenses
  Fixed expenses are bills that stay the same every month. Fixed expenses are mortgage or rent payments, loan payments, insurance premiums, car payments, etc.
• Flexible Expenses
  Flexible expenses can change every month. Flexible expenses are groceries, utilities, credit card bills, household supplies, school supplies, clothes, etc.
• Discretionary Expenses
  Discretionary expenses may be unnecessary expenditures. Discretionary expenses may be dining out, entertainment, magazines/newspapers, hobbies, organization memberships, etc.

If you don’t know what you’re spending on these items per month, you should track all expenses next month. Leave nothing out; even the smallest daily expenses such as a coffee or newspaper can add up quickly.

Managing Your Money

Once you know what you spend, the next step is to budget your income to better manage your money. CreditGUARD of America recommends you spend the following every month:

Percentages of recommended spending.

Use our free online budgeting tool to help match your monthly budget to recommended monthly spending. If you find that you spend more than your income, you may need reduce or eliminate some discretionary expenses.

For example, you spend $100 more each month than you earn. If you buy a $3.87 specialty cup of coffee each morning on the way to work, that cup of coffee will cost you $77.40 each month. Eliminate that daily expense and your budget is only $22.60 over. Now, eliminate one restaurant visit and suddenly your personal budget matches your income.

Can I Afford It?

The secret to personal budgeting is to always ask yourself one simple question, “Can I afford it?” Not just, “Can I afford it today?” but “Can I afford it this month?” As you have just seen, that cup of coffee may not seem like a big expense today, but a month of coffee becomes expensive.

Don’t be upset if things don’t fall into place the first couple of months of personal budgeting. There’s going to be trial and error. The important thing is to keep trying and don’t give up. Track your expenses and close the gap a little more each month.

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