For many people, the word "budget" has some negative connotations. It's very easy to think of your budget as the tool that tells you what you can't spend, but the truth is that a budget tells you what you can spend, too. A budget simply gives your money a job, and without one, money comes in and out of your household without a plan or structure in place. If you've ever lamented that you don't know where your money goes every month, you need a budget.
There are a lot of options out there for budgets, from various systems found on the internet to apps you can download that will help you organize your spending. Ultimately, the budget that is best for you is the one you can stick with. Let's go over some budgeting basics, and look at a real-life example of a budgeting category that a lot of people struggle to manage.
Your Budget Starts With Income
If your income is irregular, it may make it more difficult to create a budget, but it's likely even more necessary so you can stay on top of what you're spending for bills and other expenses. See if you can calculate an average month's income to make your monthly budget.
There are Many Ways to Approach Budgeting
Don't Get Discouraged By Your First Month on a Budget
Consider your needs and wants when it comes to your money and creating a budget (or consider what you must, should, could, and won't spend money on). It's up to you to give your money a job, and part of this process is also figuring out where you're overspending. For example, many people struggle with spending on food (in the form of groceries, going out to restaurants, and ordering takeout).
A Budgeting Example: Food Costs
If you like to order drinks when you go out to eat, a lot of your costs are going to alcohol; the markup on it is one of the major ways restaurants make money. Consider making your alcohol spending a separate line item in your budget, if it's a big expense for you. The good news is that it's not too late to make better choices when it comes to your food costs.
The trick is to figure out how much you want to spend on food every month and find ways to make that work. That might mean cooking at home more often, if you enjoy it (or at least don't mind it) and have the skills. You could consider subscribing to a meal kit service, like HelloFresh – a lot of people find that this makes cooking easier and more fun. And if you don't want to cut restaurant spending out of your budget, find a balance.
For example, if you decide you want to spend $250 a month on dining out, that might mean you can visit two very nice restaurants per month, at a cost of $125 per night out. If you can manage to spend just $50 to eat out, that's going out to eat five times per month.
The goal is to make your budget reflect your life, your income, and your spending, and still be able to save money, pay off debt, and improve your financial life – all while actually seeing where your money goes.
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