How to Use a Budget

A budget can help you reach your financial goals.

A budget is a tool to help you realize your financial goals.Budgets are not restrictive, but rather give purpose to how you spend your money. Budgets will vary from person to person because each person has different priorities and goals. Setting up your budget is just the beginning; to use it successfully, you must follow it.

Instructions

1. Set financial goals you would like to reach. Examples could be saving for a down payment on a house, getting out of debt, going on your dream vacation or retiring early. Set a timeline for reaching those goals and then determine how much extra money you will need each month to reach that goal.

2. Write a budget by listing your expenses. Be sure to include utilities, debt payments and entertainment in your categories. Subtract the total of your expenses from your income. The amount left should be equal to the amount you want to set aside to reach your financial goal.

3. Cut back on your spending until you have enough to reach your financial goal on time. Most people begin by cutting back on eating out and entertainment expenses. You can lower the cost of your other bills by changing to a cheaper plan or finding a new provider.

4. Track your spending in each category and stop spending money once you have reached your limit. The goal is to not go into debt or touch the money you are putting aside for your goal. Transfer between categories if you need to cover unexpected expenses. Do this every day so you will have an idea of how much money you have left at all times.

5. Adjust your budget after the first month or two so that it is realistic. You may find you overestimated in some categories, and underestimated in others. You may also adjust your deadline so that is achievable with your other financial obligations.

Tips & Warnings

• Reward yourself when you are able to stick to your budget and reach your goals. Small rewards along the way can keep you motivated, while you work towards a bigger goal.

References

• CNN Money: Making a Budget
• MSN Money: Build Your First Budget