For some people, a household budget is elementary. For others, though, it’s an alien idea. Either way, making and sticking to a budget is the first step financial advisers suggest for people who are looking to put their economic lives in order. You need to understand where your money is going before you can start to control it, and a budget can help provide the discipline you might otherwise lack. Before you start jotting down numbers, experts say, you should have an idea of what you want your financial life to look like. A basic expectation would be that you spend less than you earn – for many people, achieving that would be a success. But you should also have a long-term goal in mind, whether it’s getting out of debt or boosting your savings. You can use the form at left to at least begin figuring out the contours of a monthly budget.
Keep it simple, at least to start
Don’t overwhelm yourself with something that’s difficult to track or stick to. Begin with the basics; you can add more details – about, say, investment income or deductible expenses – later.
Converting your paycheck
Here’s a formula for converting a weekly paycheck into a monthly amount: Weekly Pay x 4.333 = Monthly Pay.
Here’s one for biweekly paychecks: Bi-Weekly Pay x 2.167 = Monthly Pay.
And this one probably goes without saying: Convert annual totals to monthly amounts by dividing the total by 12.
Some people like to use envelopes as a method for sticking to the budget. They put cash into envelopes labeled for groceries, entertainment and other spending. When the envelope’s empty, they’re done spending for the budget period.
If you want to use your budget to target and reduce debt, a lot of financial advisers suggest paying the minimum on every debt but your smallest one. Then send all the money you can toward paying off your smallest debt as fast as you can. Then go after your next-smallest debt, and so on.
There are lots of budget programs out there that can automate your budget planning and make it simple.
Get the whole picture
Don’t forget out-of-pocket expenses like coffee or magazines. One of the big advantages to budgeting is controlling expenses, and you’d be surprised how much progress you can make by tallying and limiting small expenditures.
Budget for fun
A hyperfrugal budget can be like a strict diet – unless you allow yourself a little treat now and then, you’re liable to binge when stress hits. If you can afford it, allow yourself room for a small reward.