A budget is a plan for how to spend and save your money. A monthly household budget can help you make sure you have enough money to pay for things you need like rent, groceries, and electricity. They can also help you think about how you spend your money on things you want like cable television or having a pet. Paying for all your household needs before you spend money on things you want is a wise financial habit. Knowing how to make a budget is an important first step toward managing your money.
Understanding the difference between wants and needs is a way to build a budget and make sure basic needs are taken care of such as food, clothing, and shelter before things that are upgrades or nice to have. Learning to save money is also a necessity because having an emergency fund helps to avoid a major crisis. It also allows you to save for specific purchases without having to use credit therefore, saving you money in interest. An emergency fund is usually around $500-$1,000 as a minimum. That is typically enough money to be able to cover an emergency. This can create peace of mind for the individual and also help relationships since there is no need to argue because you have the money to cover an emergency. While there is some stress related to emergencies there is less stress when there is money to cover it.
The first step I like to do when creating a budget is to track expenses for a month so you know where your money is going. If you don’t know where your money is going then it is difficult to sit down and put a number in each category. Some categories like rent stay the same but other categories, for example, groceries, can be surprising when we pay attention to what we are spending.
Sometimes we can also be taken off guard by how much we really spend on seemingly little things. We can make better choices when we know exactly how much we are spending on something. For example, stopping to get snacks or drinks at a convenience store, can add up quickly. A fountain drink can be around $2.00. If we stop five times a week that adds up to $10.00 a week. If we don’t know what we are spending then we can’t make an educated choice on how to spend our money. Some people might be willing to spend $10.00 a week on drinks and others may not be willing to spend that much. The choice is yours.
Having a budget is telling your money what to do. To some people budgeting feels restrictive but knowing where your money is going can also create a sense of freedom. You also need to know how much money is coming in. What are all your income sources? The more informed you are the better decisions you can make around anything and this includes personal finance. Once you create a budget you can use an online system or the envelope system to keep track of your budget. There are a lot of online budgeting tools so you can electronically keep track of
your spending. Or you can utilize an envelope system where you put cash in each envelope and each envelope represents a category. Examples of categories include rent, groceries, gas, utilities, savings, etc.
The goal is to tell each dollar where to go. If you have money left over after all the basics and bills then you can decide how to use those. Even if they go to savings or a miscellaneous category, tell each dollar where it will be spent. Likewise, if you run out of money before everything is paid, then you will need to find ways you can cut back or increase your income.
It takes some time to get used to doing a budget. You aren’t going to be perfect the first month if you’ve never done a budget before. It will take some time and trial and error to get your budget to work well for you. Keep practicing until you figure it out. Be patient and don’t give up!
Monique Koerner is the Family and Community Wellness Agent with K-State Research and Extension – Cottonwood District. You may reach her at: 785-628-9430 or [email protected]. K-State Research & Extension is an equal opportunity provider and employer.