How much money are you earning? How much money are you spending? Where are you spending your money? How can you make sure you don’t get caught with a bill to pay and no money to pay it? Are you saving any money? All of these questions can be answered if you create a budget and use a money management tool.

What is a Budget?

A budget is basically a plan for how you will spend and save your money each month, and helps you identify spending habits and make long term financial goals. It helps you track all your income (money you earn or are given) and all your expenses (all the money you spend) and makes sure your expenses don’t get larger than your income.

Why Create a Budget?

Three reasons:

1. To keep yourself out of debt (as much as possible) – and all the fees associated with it
2. To allow you to plan and save for larger purchases in the future, like a car or home
3. To put aside money for a rainy day (like a pandemic!)

Here’s what happens when you don’t have a budget and you don’t know where your money is going. Note that only about a 3rd of households follow a budget!

1. The median American household has only $11,700 in savings. And 30% have less than $1000 in savings!
2. You spend money you don’t have
   • Average credit card debt in CA: $8900
   • 780,000 bankruptcies in the US in 2018
   • Bounced checks cost a minimum of $25
3. You pay way too much in credit card and loan fees
   • 27% of Credit Card holders carry a balance most or all of the time
   • At a 17% rate, a $5,000 Credit Card balance will cost $450 in fees if paid off in 1 year.
4. Mismanaging your money results in a bad credit score, making it harder to get loans in the future, and making those loans more expensive.

How to Create A Budget

There are two key takeaways for getting started quickly and easily on a budget. Do these two things and you will 99% toward a budget that incorporates all your spending and takes very little effort to manage..

1. Get a debit card for your checking account and pay for everything with it. Do not use checks or cash.
2. Sign up for an online budgeting tool, like Mint, that can connect to your checking account and pull all the transactions and create an overview of your spending habits.

Reading the links below will give you a solid foundation in creating a budget.Here are are a few keys things to think about as you read:

• Creating a budget, which requires that you track ALL of your expenses, is much easier if you ALWAYS use a debit card, rather than cash or checks. 
• If all expenses are paid for with a debit card, then an online budgeting tool, like Mint, can connect to your bank and pull all those expenses and automatically categorize them for you. And create a budget for you with minimal effort on your part.
• Using cash and/or checks means you have to personally keep track of all those purchases in a ledger, and then enter them manually into your budgeting tool. Guess what – people think they will do that….and then don’t!
• If your budget is missing key expenses, like your $3.15 Starbucks run, then your budget can’t do its job for you. That daily coffee habit alone adds up to more than $800 a year! Which when invested can add up to $142,000 over 30 years – see link below.

Read about and understand Fixed expenses vs Variable expenses. You can’t change fixed expenses quickly and easily, meaning you HAVE to earn that much money every month to cover all your fixed expenses.

• Fixed expenses are basically those expenses that you have every month, regardless of what you do; things like a car payment, a house payment, rent, a mobile phone payment, a monthly food card at college.
• Variable expenses are those expenses that you have every month but that you don’t HAVE to spend, or that you can alter the amount of every month; things like that Starbucks run, new clothes, dinner out, and even buying organic vs non-organic are all variable expenses.

Read: https://www.thebalance.com/how-to-make-a-budget-1289587

Read: https://www.creditkarma.com/advice/i/50-30-20-rule/

Read: https://www.fool.com/investing/2018/04/21/budgeting-101-how-to-start-budgeting-for-the-first.aspx

Read: https://avgjoefinance.com/surprising-amount-starbucks-costs/