A sad fact in today’s modern society is that many people receive a complete high school and even college education without learning anything about budgeting. We’re taught how to make money, not how to manage it.
But often times, the management part can be more important than what you make. For example, a high earner with a huge salary may spend on extravagant expenses. While someone with a modest salary may be very frugal, and could be the one in the better financial situation. In other words, growing your net worth isn’t about how much you make, it’s about how much you spend relative to what you make.
How to Budget
So what’s the first step in budgeting? The first would be keeping track of everything that you spend on. The easiest way to do this would be gathering the data directly from your bank accounts. Go over the last month of your expenses and add the amount spent on each transaction to your budget.
Then, you can duplicate this budget for future months and change recurring expense amounts as need be (heating would cost more in the winter, for example). By repeatedly doing this, you’ll get a clear picture of what your average spending per month relative to your income is, and how much you’re saving.
Budgeting can also reveal hidden truths, such as if you spend more than you think on eating out. This can help you find expenditures that you can reduce or remove from your budget. Ultimately, you will increase your savings amount towards your goals. Knowing what your spending on and how it affects your budget for a month can help you make rational decisions and not spend when you don’t need to, but can also help you realize when you can spend money guilt-free. Remember – don’t forget to budget! You’re working hard for your money – put it to good use!