When you set up a budget, you will be amazed at how much extra money you have to save for an emergency fund or maybe for a down payment towards a home.
First Steps to a Budget
The first step in creating your budget takes a few months. Two months at the least. You need this time to record every transaction and expenditure so that you have enough data to analyze.
All you need to complete this first step is a pencil and paper (a small notebook would be ideal.) Carry this notebook with you everywhere or maybe just put it on your nightstand so that every night you make your entries.
What you want to write down is the date, the amount that you spent and what or where you spent it. You don't have to go into great detail but do put enough detail so that you can decipher what the actual expenditure was once you have enough data (2-3 months.) For instance, you may want to write groceries for your grocery shopping, and utilities, gas, electric, etc. If you happen to be shopping at one of those one stop super stores where you can buy groceries and clothes, shoes or whatever, don't lump it all together. Break out the groceries and the clothing items. This is very important, as you need to be aware of the things that you are buying.
You may get tired of this first part of the budget process, however, it is the second most important aspect to the budgeting process. Besides, it is good practice for recording all of your transactions in your checkbook (see checkbook balancing article.) --shameless plug!
Analysis of the Data
Once you have done this for at least two months you can then sit down and look at your data. Add up all of the same category items and list all of these categories and totals on a piece of paper. Look at your expenditures..... Look hard. Do you see any areas where there might be some fruitless spending?
Come on! We all do it.
Do you see that lump sum video rental category? Do you see that monthly cable with premium channel rental? Kind of repetitive, don-cha think? Why are you paying for premium movies if you're not getting what you want anyway? You're paying double by going and paying more for what you really want? There's a few dollars back in your pocket if you cut the premium channel and get basic cable. Maybe you want to visit the video store less often. It's your choice and in your control.
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