Unless you are a billionaire tycoon, you need to have a budget. This doesn’t have to be complicated, but you need to know what’s coming in and out of your bank account(s) every month. With the cost of living going up but the growth of wages stagnating, you need to know that you can continue to afford your current lifestyle. If you can’t, it’s time to make some adjustments.
To start, break your budgeting into steps.
Your regular expenses will need a category. Things like your car payment and gas, for example, will appear in your transportation category. This will include things like insurance, any sinking funds for your repair expenses, and your monthly car payment.
Your budget needs to have individual categories to contain every expense and this will help you to manage your money better.
Housing: Any payment you make to keep the roof over your head is a housing expense. Whether you pay rent or mortgage doesn’t really matter. You should also include any housing association dues, home maintenance costs, and even your home or renter’s insurance.
Transportation: No matter your lifestyle, whether you drive a car or you take public transport, you need to bundle all of your transportation costs into one category. If you drive a car, your insurance, registration, DMV fees, gas – you get the point – has to come under this category. Doing this will help you to understand whether you are spending too much money on your car and whether you should be switching to riding a bike, carpooling or walking more.
Food: Groceries and dining out fall into this category. Takeout and food delivery costs are also in the food category.
Utilities: Even if you pay your utilities quarterly, breaking up those costs into monthly payments instead could make it easier and more manageable for you. Consider your water, electricity, internet, cable/streaming services and your HVAC.
Savings: Every budget should have a savings category. If you don’t have an emergency fund, now is the time to start one.
Debt: If you have student loans, personal loans or credit card debt, this will have a category in the budget as well that should be at least the minimum payments but ideally as much as possible.
There are many other categories to add, such as child care, schooling and memberships, depending on your lifestyle.
Look for ways to cut costs
To lower you costs, the categories you established can help you see where you can cut back if you need to. You can sell your car and buy a cheaper one with the help of resources like Edmunds, for example. You could save on rent by finding a roommate or moving into a more affordable apartment or home. You can bike to work on nice-weather days and drive when it’s colder to save on gas and get exercise. If you notice your utilities are too high, you can call the companies and ask about possibly switching plans, if available, or signing up for assistance programs. Of course, there’s only so much cutting you can do. If your income is not enough to cover expenses, there comes a point when you need to find ways to increase your income. No one should have to find side hustles to survive, but absent more governmental help, it becomes a necessity for many people.
What categories are essential for your budget?