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5 Steps to Harnessing Your Budget

What You Want vs. What You Need

Broken Piggy Bank

With tax day fast approaching, you're probably hoping that you're in for a nice tax refund. However, as you look at your finances, you may also be thinking about your day-to-day budget and how you spend your hard-earned paycheck. If you want to change the way you spend money in order to have a more balanced budget, read on. Here are five steps to help you learn how to budget your money.

Step 1: See where the money is going.

The first step in budgeting your money is to understand how you are currently spending it. Look at your paper bank statements, online bank statements, your check register, receipts you collect -- anything that shows what you spend the most money on. Try keeping a daily log of your expenses as well. By writing purchases down, you'll quickly be able to see what your money is going towards. 

Step 2: Figure out where you can cut costs.

This part can be a challenge, but it can be really helpful to evaluate the way you spend to determine what you want versus what you actually need. For example, it's nice to go out to dinner and a movie with your family every weekend, but it could be more cost efficient (and maybe even more fun!) to cook dinner at home, pop some popcorn, and rent a movie. Here are a few more ways you can cut your costs:

  • Take a closer look at your insurance. You may be able to bundle your life, home, and/or car insurance for a better deal. You can also research other providers or different types of policies to find out if switching would save you money. If you are paying too much for your car insurance, for example, think about low-cost car insurance, like non-standard insurance, which could offer you good coverage at a reasonable price.
  • Find out if your service providers offer bundle deals or discounts. Often cable providers or cell phone providers will grant reduced rates in order to keep a customer. Check out these bill negotiation tricks; while your bills might seem unalterable, they may not be as fixed as you think.
  • Ask yourself if you really need some of the perks you're paying for, like movie channels on your cable subscription or an expensive cup of coffee three times a week. Cutting out the recurring little expenses can make a big difference over time. 
  • For free entertainment, head over to your local library. Books, music, and movies are all free with a library card.
  • Instead of going out for lunch or dinner, eat at home and make your lunches more often. The money you spend on one meal out could be put towards groceries that will make two or three meals. 

Step 3: Make a new budget.

Next, build a framework for your new budget. Whether you use a paper and pen, a free online budgeting tool, a mobile app, or financial software, it's up to you. Take into account your current income, plus the amount you spend on utilities, insurance, mortgage payments or rent, groceries, clothes, transportation, medical expenses, and any other recurring expenses. 

Then, set goals for the  maximum amount you want to spend over a certain period of time. Remember, if one of the factors in your budget changes -- let's say your cable provider raises the rate of your subscription -- adjust your budget accordingly.

Step 4: Track your progress.

Once you've made your new budget, you’ll need to know if you’re sticking to it. Add up how much you spend each week. Review your credit card statements and check your online bank account reports regularly. Collect your receipts throughout the week, then sort through them at the end of the week to determine if you are on the right track. However you do it, make sure you are keeping tabs on your spending habits.

Step 5: Stick to your budget.

It can be tempting to buy a new pair of shoes or have another dinner out.  But when you run into a spontaneous decision like this, stop and think, “Is this in my budget?  And do I really need this?”  Making a conscious effort to check yourself as you shop will help you stay on track and better budget your money.

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