Unless you budget your money, you're practically inviting unnecessary debt into your life, and making it impossible to save. These steps will help you figure out what money is supposed to go where so you can control your spending accordingly.
Steps
1. Create a budget every time you get money. For most people, this is once every two weeks. Sometimes it's weekly, sometimes it's monthly. Either way, it's a regular interval, and it's the best time to decide how you're going to spend your money. Make it a rule that you don't spend any of your paycheck money until you've worked out your budget.
2. Make a list of all the things you'll need to pay for until the next paycheck, such as:
* Rent/mortgage
* Utilities
* Vehicle payments, insurance, maintenance (e.g. oil changes, tire rotations)
* Debt (credit card payments, student loans, doctor's bills)
* Gas
* Tuition, school supplies
* Food/groceries
* Health insurance
3. Anticipate how much you'll need to pay for each and write that amount next to the corresponding item on the list. You can also opt to pay for a fraction of something that isn't going to be due until after the next paycheck. For example, if your rent is $800 due on June 1, you just got paid $700 on May 12, and your next paycheck will be $700 on May 26, it may be wise to set aside $400 from this paycheck for rent so that you only need to take $400 out of your next paycheck to pay for rent.
4. Add up all of the amounts (we will call this your regular expenses) and subtract it from your paycheck amount. Do you get a negative number? Then you are living way beyond your means. If you have money leftover, split that money up into a few groups:
* Flex money. This should be about 10-20% of your regular expenses. It's for if something you need to pay for turns out to be slightly more expensive than you anticipated. This can happen with utilities, or if gas prices suddenly go up, or you get a flat tire.
* Savings. Ideally, this should be about 30% of your paycheck, although even 10% (if you do it consistently) is pretty good. Build up enough savings for an emergency fund (about 4-6 times your regular expenses), then start saving money to invest.
* Spending money. This is whatever is leftover after you subtract flex money and savings money. It's what you'd spend on things like clothes, eating out, movies, gifts, and anything fun, basically. If you start to cry when you realize how little fun money you have, then you need learn How to Reduce Your Expenses.
5. Put everything but your spending money out of reach. The easiest way to do this is by leaving everything (except your spending money) in the bank. Withdraw all of your fun money in cash, and leave your debit card (and credit card[s]) at home. Use the cash for anything you want, just make sure you make it last until your next paycheck. You might not want to carry it on you all at once, but having physical cash will help you keep better track of your fun money than using a card.
Example Budget
Paycheck: $741.56
Regular Expenses:
* Rent $300
* Utilities $50
* Food $50
* Credit card payment $50
* Total - $450
$741 - $450 (regular expenses) = $291
$291 - $45 (flex money, 10% of regular expenses) = $246
$246 - $150 (savings, 20% of paycheck) = $96 money I can do whatever I want with until my next paycheck
Tips
* If you don't end up using your flex money, roll it over into your savings.
* An alternative way to budget is to Pay Yourself First.
* If you get paid about the same amount on a regular basis, it'll get easier to budget your money over time. If you have a variable income, it'll be harder to anticipate your expenses because you won't know when's the next time you'll get paid. List your budget categories in order of importance and fulfill the most important items first. Play it safe; assume it'll be a while before you get money again.
* If you can, create a personal income statement or balance sheet. This will allow you to see what you owe for rent, utilities, loans, etc. and how much you can keep for yourself.
* One way to stay in a budget is, after you’ve set aside all the money for things that you need to pay for, take out only as much cash as you can afford to spend until your next paycheck. Then DO NOT take out any more money until that next paycheck. Most of us spend what’s in our wallet. If you limit that cash you put into your wallet, you can limit your spending.
* If you have spendthrifts in your circle of friends, you may need to formulate a list of ready excuses to explain why you can’t go out with them all the time.
* The most important thing is to remember that there is a difference between what you need and what you want.
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