Last week, we presented several reasons why budgeting makes sense. Part 1 of this article discusses the difference between purposeful and impulsive spending, and how it can make a significant difference in quality of your life. Today, we teach you how to actually create a budget that will work for you. No matter how much you are earning, there is a budget that will let you stop living in debt or from paycheck to paycheck. 1. The first step is to figure out how much your expenses are. This includes not only your month-to-month costs like rent, food, transportation, and luxuries but also the exact amount of money you owe whether to banks, credit cards or people. This can take time, especially if you have been in the habit of closing your eyes to your financial situation. For some people who have reconciled themselves to the idea of living beyond their means, it’s quite usual to juggle several overdrawn bank accounts and credit cards. So gather up everything and anything that has to do with your money like your paycheck slips, bank statement, unpaid bills, receipts, etc. Forget about sorting it systematically; you could do that later once you have everything you need. 2. The next step is to tally just how much money you are making. Obviously, if you are part of a couple who shares expenses, this could be a sensitive area if this information does not happen to be common information for both parties. In that case, sit down together and come to agreement about how this step is needed. At the very least, you may not need to disclose every single source of income, but at least get a grip on those that are openly shared between you. When it comes to figuring out your income, it is definitely better to underestimate. For example, if you freelance or work on a commission basis, estimate your income at the minimum level that you pull in. 3. Now that you have all the paperwork gathered together in one place, sit down and list all of your financial obligations on column and your sources of income in another. Be as realistic and as ruthless as you can. This is the one area where it is better to be a pessimist than an optimist. 4. From the list of financial obligations and expenses, determine your priorities. Obviously, staples like food, rent and gas money come first but consider how much you are currently spending and where you can cut corners to have more left over for savings and debt, especially if you are being held hostage by high interest rates or do not have any plan B in the off-chance that you might lose your main income. Ask yourself: do you really need that cable package when you rarely watch TV and just go online anyway? How about packing your own lunch and bottled water instead of subsisting on inferior and overpriced cafeteria food? While it is good to be stingy, be insightful enough to recognize what is practical and what is not. For example, don’t skimp out on car insurance or necessary home repairs; the goal is to trim the fat. 5. The process of figuring out a workable budget will take some time, usually a few months. Get into the practice of writing down your expenses and your income so that you can recognize your spending patterns and constantly improve on them. Your goal is to arrive at a place where your expenses are at least balanced with your level of income. Obviously, this task is much harder if you have accumulated a large amount of debt (we propose to discuss that later on, since the getting out of debt requires different management strategies) but for less intimidating amounts, it shouldn’t be that difficult to clean up. A key strategy to use it to set aside at least 10% of your income before deducting your expenses and use it to pay off debts or put it into savings (again, more on this in later blog posts). If you have been in the habit of freewheeling it with you money, it will take some discipline to get used to working within a budget. But hey, being a responsible adult means getting on track with your financial management. It’s never too early or too late to start getting serious about your finances. Looking for clearance mattresses and beds in the UK ? We always have some marked down prices that are great steals; check the main site for ongoing promotions and sales, especially the mattress deals of the week.