Creating a budget can be intimidating and overwhelming if you've never done it before. You want to be able to stick to your budget, but you also want flexibility for everything that happens. A budget can be a really helpful tool to prevent overspending, if you do it right. Having the right budget in place also sets you up for success in the future. It will allow you to save more money and pay off any extra debt you may have.
Track where your money goes
Before you create a budget, you need to know where your money has been going every month. This can help you learn where you're overspending and make cuts for your budget. Using a tool like Mint can let you track and categorize all your transactions. Once you link all your financial accounts to Mint, it automatically collects past payments and categorizes them for you. However, you should still double check the transactions and make sure they are in the right category.
Now that you know where your money goes, you can build your budget around it. You can set limits on how much you want to spend in each category. Also check your transactions for overspending in certain areas. If you're spending $300 on gourmet coffee each month and struggling to make payments, maybe you should look for alternatives and set a lower budget.
Create a budget for freedom
When you create your budget, make sure you leave a little room for the things you want to do. Add a small budget each month for fun stuff. Make a budget that includes flexibility for activities like bowling, skydiving, or whatever you're into. Just because you made a budget, doesn't mean you can't have fun.
Always leave extra room
When you make your budget, don't allocate every single dollar you earn. Make sure you leave a little wiggle room so that you can save some money or have extra money if something pops up. Leaving some extra money will also allow you to go slightly over budget in one or two categories if you need to. This gives you some extra flexibility to pay down debt, save, or invest.
Don't budget less than you need
Another big problem that can happen is budgeting less than you actually need. If you budget less than you need for groceries, you could force yourself to break your budget or eat ramen for a week straight. Of course, always make sure your essentials are taken care of first (bills, food, etc.). If you need to, make cuts in areas that are less important so that your essentials are covered.
Of course, when you first create your budget, not everything is going to be perfect and you'll have to adjust it over time. Just make sure that your budget always leaves you spending less than you make for the month and adjust it as your needs change.
