To create your first budget you are going to have to prepare for budgeting by being honest with yourself. Gather your paychecks, bank statements, credit card statements and receipts from the past 3-6 months. Then crunch the numbers to see how much you really make and where you spend the most money. You can get as detailed and or as automated as you want in this process but the more you analyze now the more accurate your budget will be.
Next step is you are going to have to set a goal for each category in spending. Some of these categories include Rent/Housing, Utilities, Transportation, Food, Personal Care and Taxes. However, you define your categories in spending you should use your previous analysis to set percentages and goals for spending and saving. There is no rule for how much to spend at each area but using common sense you should allocate enough money toward necessary bills firs like housing and utilities. Next should come your other expenses and finally discretionary spending.
You should also keep in mind how much money you could use towards a savings goal like retirement or emergency fund. The ultimate goal is to achieve a balanced budget. In other words, your expenses should always be equal to or lower than your income. After all, you don’t want to go bankrupt right?
Well, if that means cutting back in certain areas like cable television or daily coffee then it is a sacrifice that you should make. Stay on course for the first few months and remember you can always refine you budget along the way.
Remember that creating a budget and staying within it can be extremely beneficial if you are trying to improve your credit score, or when trying to establish credit. One of the things that many tend to overlook is that now a day’s your credit history is of extreme importance. You would be surprised to see who looks at your credit scores. Your credit history and scores are often looked at by potential employers, when renting an apartment or a house, etc. Why do they look at your credit score and history? The main reason is because your credit history is a direct reflection of your level or responsibility.
Therefore you should always attempt to stay within your budget and not overspend using credit cards, or obtaining loans. Improve or establish a good credit rating by creating and staying within your budget. Don’t make the mistakes that many do. Don’t bury yourself in debt.