This illustration by N. C. Wyeth of the Treasure Island edition of 1911 probably won’t be relevant to your life, but even if it was, Jim Hawkins here should make out a budget for all that sw33t l00t. Plenty of people have made lots of money and then lost it because they weren’t paying attention to spending.
You will probably, at some point, want more money than you have. Barring some miracle, like finding pirate treasure, the best way to make sure you have enough money is to take care of what you do have and keep track of it. The best way to keep track of your money is to make a budget. If you’ve ever wondered where your money goes by the end of the month, never fear, I’m here to walk you through exactly how to make a budget, step by step.
The point of making a budget is to find out what you do know about your money situation, what you need to know, what kind of money you have, your expenses, and – most importantly – to make a plan about how to manage that money in the future.
Here’s what you’ll need:
Scratch paper and pencil
Calculator app (probably already on your phone) or calculator, abacus, whatever
Spreadsheet program, like you can find on Open Office, Microsoft Office, Google Docs, etc.
That’s a lot of and/or because all you really need is to be organized and think about your money. The procedure for making a budget is as follows.
In a list with two columns, write how much money you have coming in every month:
Then, list everything you spend money on every month, and how much you really do spend (honestly, no cheating: the most important person never to lie to is yourself). This is where it might help to have some scratch paper, so you can make this list really orderly and clear. Be as specific as you can.
This is just an example, of course. Yours will look different. If you don’t know how much you spend on what, it might really help to keep receipts you get whenever you buy things, and actually sort and tally them up for a month, or (even better) a few months, so you can get a real idea of what you’re actually spending, and what you’re spending it on, and not just what you think you’re spending.
Next, subtract your total expenses from your income. This is how much money you can manage to put away every month.
After you look at your budget, think about what you want money for. Make financial goals. It can be as straightforward as buying a new game system, or saving for pottery classes, or new shoes. As you can see, it will be a long time in this example before I can afford a new game system. (If a new game system is $380, and I save only $5 a month, it will be an excruciating 6 years and four months before I can buy one, and by then, we’ll all be going to virtual reality arcades or something.) Here’s my work:
380 (dollars) / 5 (dollars/month) = (dollars cancel out, leaving months) 76 months.
76 (months) / 12 (months/year) = (months cancel out, leaving years) 6.333333… years, which is six years and a third of a year, which is four months. OUCH!
But, if you want to change that, you will have to pay attention to how you spend your money, and on what. With a budget, you can see how much you have coming in, and what it goes out for, and where you can cut expenses. From here, make a plan.
Change your goal. Can you get a game system used, and therefore less expensively? This puts your goal closer to your reach.
Change and eliminate expenses. Fifty bucks a month is pretty steep for food with friends. Go out less, or somewhere cheaper, maybe, to save a bit here.
Change your income. Is there some way you could make more money?
Revise your budget to make room for your goal, and trim down expenses. Now, you have a plan to follow. Monitor your own progress by checking whether you really did spend less where you want to, or earned more. If you do this long enough, and keep your receipts, you may find patterns in your spending. Your income might vary seasonally (Summer jobs, more time), or suppose you tend to spend more money when school is in session, because you can’t resist the vending machines and you have to buy school supplies. Every bit of data like this will help you make and meet financial goals, if you use your budget. Let’s see how it all comes together.
Suppose I do want a game system, on the budget shown above. New, it’s about $380. The exact same system (model, specs and everything) refurbished, however, is about $270. That’s $110 cheaper. If I choose to get a used one, then, I automatically jump $110 closer to my goal. Suppose I also start paying more attention to where and what I eat with friends, maybe going out less often, and more like for frozen yogurt or something once a week, rather than go to a movie, with all the popcorn, etc. or to a restaurant. Suppose I also get a bake-a-pizza instead of ordering out for game night, too. Now, my monthly expenses look like this:
Hey, just making some changes opened up a lot more spare $$$. Now, at $40 per month, assuming I save it all for my new (to me, because it’s used) game system, I can afford it in a little over six months flat. How much more money could you open up per month, if you sat down and made a budget, and a plan like this? I think making a budget is definitely worth the time.
BONUS ROUND! If you want to get even more crazy about saving money, though, let me share another tip: take everything a step further, and ask what you want a purchase for, in the first place. In other words, what is the goal your goal achieves?? I want a new game system, so purchasing a game system is my financial goal, but what do I want a game system for?
Do I want a new game system, because I play games with my friends, and they all have new game systems, and I need to keep up, technologically? Do I need to keep up and get a new game system because playing games is fun? Do I want a new game system because hanging out with my friends is fun? Maybe, the even more cost-effective solution is to get a hand-me-down system, or a free app, or stick with your old system, and get (new to you) used games for it (classic games are classic for a reason, after all). You can always find games to play with your friends. You could go on frozen yogurt and augmented-reality-mon-catching (free app!) parties with your friends, and get Ultra Bash Siblings ($10 used!) for your old game system, for game night. (Besides – to be brutally real here – if your friends ditch you just because you don’t have the newest game system that they all do, you don’t have a game system problem, you have a much bigger shallow-jerks-for-friends problem.)
Always think about what you are setting your goals for, anyway. What purpose do they serve? If you do decide to forgo that game system, that’s $40 richer per month anyway. If, however, you do the emotional calculus, and you find that you really do want a game system, then by all means budget and save for it, just be aware that money stuff is almost always tangled up in weird feelings-stuff too. Being aware of the deeper motives for spending money can also help you get control of your spending choices. Spending is a choice, after all. Stuff doesn’t just leap into your shopping basket on its own. So, take control by thinking consciously about money, and you can start by making a budget.