An investment in knowledge pays the best interest.” – Benjamin Franklin
Are you thinking of leaving the nest soon? Before you do, you’d better make sure that you are prepared when it comes to financial literacy. The first step in being financially responsible is knowing how to set up a budget.
At its core, budgeting is extremely important as it determines whether or not you have enough money to do the things you want and pay for the things that are necessary. It is a careful balance between your income and your expenses.
Budgeting can be accomplished by a general framework of three parts: money for expenses, money for saving, and money for everything else (sometimes called flex money). Don’t forget to factor in irregular but recurring expenses such as annual dues, insurance, and auto registration.
Budgeting is a way to prioritize your spending through careful planning and organizing. This planning process lays out where all of your money goes. For example, you may have expense categories for groceries, restaurants, entertainment, clothing, internet, phone, gas, rent, or whatever suits your needs.
For a budget to work, it’s important to discipline yourself. This means that your grocery money is meant for groceries only. Stick to your budget and only use what you’ve set aside for each category. Don’t go raiding your grocery funds to buy games.
You can use any remaining money for whatever you want, but keep in mind that once you’ve used up your paycheck, you’re stuck until you get paid again. Just because you have some extra money doesn’t mean you have to spend it. It’s okay to have a little extra money left over at the end of the month!
If you plan on making a large purchase sometime in the near future, you can set aside a separate savings category for a special purpose, such as a new computer fund. It’s also a good idea to have an emergency fund and/or rainy day fund (in case your car breaks down or to cover an unexpected medical bill).
Creating a budget on your own can be a bit overwhelming and intimidating. Luckily, there are budgeting software apps and programs available to make this task a little easier and less daunting.
Moneymunk.com recently put together a huge resource page on budgeting and paying off debt, with sample spreadsheets and a quick online calculator to help you out. This works for consumers of any age, status, and situation.
Here is it: https://www.moneymunk.com/budgeting-101