If you have recently graduated from high school or college and are entering the workforce, establishing credit and developing a sensible household budget is the foundation to your future success. Creating and sticking to a budget based on your current income with a commitment to spend within your means is the first step to creating long-term financial success. The following suggestions will help you develop your budget.
• Monthly Income – Depending if you are a salaried employee, paid hourly, or receive tips and commission income you will need to determine your average monthly income. If you receive 1099, tip, or commission income, you should gather your most recent pay stubs and last year’s tax return to calculate what you typically earn on average each month after taxes. You should also consider: child support, alimony, disability, or cash income that you receive as part of your monthly income. Once you’ve added up all the sources of your typical monthly income you now know what your expenses can be.
• Monthly Expenses – Look at your checkbook and your most recent bank statements to determine what you are spending your money on each month. Start with your fixed expenses, such as: rent, utilities, automobile payment, insurance, student loans, and credit card debt. Then, write down what you have been spending towards: food, entertainment, and other varying expenses. Once you have determined your average monthly income and expenses, it is now time to see how you can reduce your spending.
• Lowering and Eliminating Monthly Expenses – If you have a significant amount of credit card debt, you may want to consider a consolidation loan or if you are already a homeowner, a home equity loan to reduce your monthly payments. This may also allow you to significantly reduce the amount of interest you are paying annually. Other ways to save include: eating at home more often to reduce the amount of money you spend on food each month, turning the temperature on your thermostat down a few degrees and using the air conditioner less in the summer, turning the lights and electronic devices off when you are not using them, writing a list of what you intend to buy before you go to a grocery store or department store, and use coupons and buy generic whenever possible. These are just a few ways reduce your impulse buying and lower your monthly expenses. After keeping track of your spending habits over a few months, you can then see what you are spending your money on and how to eliminate unnecessary expenses and impulsive purchases.
There are countless ways to lower your monthly expenses and save money. Implementing just a few of these cost-saving ideas will help you decrease your spending and save faster than you may have thought possible. Now that you have created a monthly budget, open a saving account and deposit $25 per week into the account. Use your savings to avoid future debt, only use it for special purchases, holiday spending, or unexpected expenses. If you are renting your first apartment and have never had to pay utilities or purchase your own groceries, sticking to your budget will require discipline and commitment. For long-term success and financial stability, it is in your best interest to live within your means and stay out of debt.