When you look at your monthly expenses compared to your income, you may wonder how to cover it all without running out of money. The best way to gain control of your finances is to start a budget. A budget is a tool that can help you to control your spending so you can work toward your financial goals. Your next question is probably “How do I start a budget?”
Why You Need a Budget
Before starting to budget, it’s important to understand why you need one. A budget can make it clear to you exactly where your money is going. You may be able to identify areas where you’re overspending so you can set limits. When you learn to live within a budget, you’re less likely to struggle with money.
Tracking Income and Expenses
To get started, you’ll need to track your income and your expenses. Keep track of predictable monthly bills along with unplanned purchases or expenses. Track this information in a notebook, spreadsheet or online app. You’ll be able to get a clearer picture of your spending habits and whether you are living within your means.
Your monthly expenses include many different categories such as:
To get a better idea of where your money is going, look over bank statements and credit card statements for the last three months. If your income is higher than your expenses, you’ll have extra money to put into savings or pay down credit cards. If your expenses are higher than your income, you’re overspending and need to make some changes.
Living Within Your Budget
The goal of your budget is to gain awareness of where your money is going. It’s easier to track expenses each day rather than trying to look over everything at the end of the month. Work toward keeping your expenses lower than your income.
If you need to cut expenses, where do you start? Common places where people overspend are on groceries and entertainment. There may be subscriptions you can cancel, or you may need to eat out less or avoid shopping sprees.
Credit Card Debt
A mistake that many people make when their income doesn’t keep up with their expenses is to rely on credit cards to fill in the gap. While credit cards can help you with any unexpected expenses, it’s important not to use them as a crutch to live beyond your means. If you do that, you may reach a point that you’re so far in debt you can’t afford to make your monthly payments.
Taking care of your financial health includes paying bills on time and being aware of what’s on your credit report. Mistakes on a credit report are surprisingly common. If you find things on your credit report that need to be disputed, Dovly can help. We’re an AI credit engine that can help you track and manage your credit. Try it risk-free with our free membership tier.