Run the Numbers

Making a budget — and sticking to it — is the first step to being a smart money manager. But only 1 in 3 Americans has a dedicated monthly budget for spending. Here’s how to get started.

1. Gather your credit card and bank statements (at least several months’ worth so you can get an accurate picture).

2. Grab a notebook and pen or create a new Excel document on your computer.

3. Divide your expenses into two categories: Needs and Wants.

• Needs are non-negotiable expenses, such as housing costs, car insurance, utilities, and debt repayments (such as student loans).

• Wants are “nice-to-haves” like movies, dining out, and clothes.

4. Note whether these expenses are fixed or variable.

• Fixed expenses stay the same every month, such as your mortgage or rent.

• Variable expenses can change from month to month, such as groceries. For variable expenses, look at a few months’ worth to come up with an average.

5. Factor in one-time expenses, such as homeowners’ insurance or roadside assistance. For those expenses, divide the total cost by 12 to get a monthly cost.

6. Make cuts. As you go through the list, look for expenses that you can trim from your budget.

7. Subtract your expenses from your total take-home pay.

Where Do You Stand?

You’ve run the numbers. Now you know where you stand. Do your expenses exceed your income, forcing you to rely on credit cards? Are you barely breaking even with no money left over for savings? If so, take time to readjust.

Many financial advisors suggest applying the 50/20/30 rule to your budget.

• 50% goes to essentials like housing, food, utilities, and transportation.

• 20% is for savings, debt payment, and long-term financial goals.

• 30% is for personal wants like dining out, travel, and entertainment.

Revisit your budget every few months. Consider online budgeting tools that will automatically pull in your expenses.

Simple Ways To Cut Costs

Changes here and there can impact your budget.

• Make a list and check it twice. The average household spends $291.50 a week on groceries. And you spend a good chunk of change on those “can’t-resist” impulse buys. Slash your costs. Make a list every week and stick to it.

• Cut the cable. Cut the cable cord and consider a streaming service instead. The average cable bill is around $200 a month. You can get a basic streaming service package for around $20 a month.

• Ditch the daily latte habit. At $4 or more a cup, a coffee a day adds up quickly. Make that drink a special treat and grab a cup just 2 days a week instead of every weekday. Develop a craving for saving!

• Shop around. Look at your recent cell phone bill. Is your current plan right for you? Find a plan that better matches your usage. Then ring in the savings.

Source: money.usnews.com