Steps to Take Control of Your Finances and Budget

Getting your finances under control and creating a budget may seem intimidating at first. However, taking it step-by-step can make the process much more manageable. Here are some practical steps you can take to gain control over your money and set up an effective budget.

Track Your Spending

The first step is to start tracking where your money is going each month. Download a budgeting app or use a spreadsheet to log all of your expenses for at least one month – every coffee, online purchase, utility bill, etc. This will reveal spending habits you may not have realized and help determine where to focus your budgeting efforts.

Categorize Expenses

Go through your expenses and assign each one to a budget category like housing, transportation, food, entertainment, etc. Breaking spending down by category provides visibility into where the bulk of your money is going. Are most expenses essentials like housing and groceries? Or is too much going toward non-essentials like dining out?

Set Limits for Each Category

Once you know your spending categories, establish limits for each one based on your income and financial goals. Housing and transportation may warrant more, while you may want to scale back on discretionary categories. Be realistic about your lifestyle and spending habits as you assign limits.

Use the 50/30/20 Budget

A good guideline is the 50/30/20 budget:

50% of after-tax income to needs like housing and bills

30% to wants like hobbies, travel, and dining out

20% to savings and debt repayment

Tweak the percentages based on your unique situation. The key is balancing priorities and leaving room for goals like saving.

Automate Savings Contributions

One of the most important budget items is savings. Make it a priority by automating contributions from each paycheck so the money never hits your checking account. Start small if needed, but create the habit of paying yourself first.

Track Progress

Once your budget is set, use your tracking system to monitor adherence and make adjustments. Having the month-to-month data will show if you need to cut back or allow greater spending in certain categories. Review regularly.