How to Live on Budgeting

A budget can help you save for the things you want.

To many people, the word "budget" conjures images of scrimping, pinching and depriving yourself of the enjoyable frills that add spice to life. They focus on all the things a budget may mean you can't have. But a budget can be a positive tool to make sure you can afford the things you want. Knowing you're setting aside money each month toward a dream vacation or a favorite hobby frees you from worry and makes planning activities more realistic.

Things You'll Need

• Copies of bills
• Check stubs
• Bank statements

Instructions

1. List your expense priorities. Food, shelter and utilities will probably top this list. Health insurance and education may be priorities for some people. Transportation could be on your list. Once you've covered the basics, list other expenses that are important in your life. For some people, this might be dance classes or regular trips to visit family or having your hair professionally done each month. List these non-necessities in order of their importance to you. Your budget may not cover every one of these items, but listing them will help you see which ones you value most.

2. Write down all your monthly bills and add them up. Separate the necessities from the extras. Some people find it helpful to keep track of their expenses for a week or two, writing everything down in a notebook or keeping a spreadsheet on a computer. This tells you how you're really spending your money and might reveal a surprise or two.

3. Compare your list of expenses with your monthly income. Consult your pay stub or bank account for this figure. If your expenses are more than your income, you're going to have to eliminate something. Start with the items at the bottom of your priority list. Cut out the things you can do without, if only temporarily. At the same time, determine how much you'll need to set aside each month to be able to afford your top priorities.

4. Brainstorm less expensive alternatives to the items you've marked to give up. For instance, make coffee or lunch at home instead of going out. Borrow movies from the library instead of subscribing to a rental service. Exchange your cell phone for a pay-as-you-go model,or take public transportation instead of driving or move to a cheaper apartment. Be creative. Instead of being powerless over your spending, make changes that will put more money in your pocket. You may not decide to do all of these things, but writing down alternatives will help you see the possibilities.

5. Focus on your priorities. Instead of moping about giving up the things at the bottom of your list, think about how much closer you'll be to enjoying the things at the top of your list. Giving up lattes in favor of making coffee at home, or packing your lunch instead of eating out won't seem like such a big sacrifice if you picture the money you save going toward paying off that debt or paying for that vacation or new toy. Keep a picture in your wallet that represents your goal so you're inspired every time you pull out your wallet.

6. Look for ways to increase your income. This could be a part-time job or selling items online. Sell your car or take in a roommate. Ask friends how they earn extra money. Earmark this extra income toward paying off debt or toward one of the priorities on your list.

References

• National Endowment for Financial Education: Why Should I Have a Budget?
• Association of American Medical Colleges: Budgeting Basics -- Managing Your Money During the Lean Years