Living within your means can keep you off the road to financial ruin and can help you lay a stable foundation for a comfortable retirement, funding future expenses such as a down payment on a home, and much more. In order to live within your means, it's important to know how to set and follow a personal budget. Setting up a budget is not difficult, and it's rewarding when you see how it helps you meet your financial goals.
What is a Budget?
Simply put, a budget is a monthly spending plan that accounts for all of your income and expenses. You allocate a set amount of money to several different categories so that you don't overspend in any one area and end up living outside of your means. Budgets can be used to help individuals stay on track with a spending plan to help determine how much extra money they have each month that can be saved.
Setting up a Budget?
As noted, setting up a budget is not difficult. First, consider taking a look at your spending over the course of about three months and note how much you are paying for things such as housing, food, clothing, transportation, personal care items, and discretionary expenses such as going out to eat or watching a movie. Once you have an idea of how much you are spending, try to determine the average amount you are spending each month in each category. You can assign that sum to the category in question and spend no more on that each month. For example, if you set a monthly budget of $100 for food each month, try not to spend any more than $100 on groceries unless it is absolutely necessary. If you find that you have allocated too much or not enough to your budget, you may have to adjust it.
Maintaining and Adjusting your Budget
Each month it is a good idea to look at your budget and spending and determine how much money you have allocated to. If you are consistently overspending on a particular category, consider raising the limit on it. That could mean, however, that you may have to lower your spending limit in another category. Make sure that you set some money aside for discretionary expenses, and do not overspend in that area. It will be the easiest area to cut from if money needs to be transferred elsewhere.
Developing a budget is not difficult, but can take some work. Here are some of the best resources for developing a personal budget: