- Have accurate data to identify how you are spending your money.
- Be realistic.
- Identify sources of income (e.g. jobs, scholarships, financial aid).
- Determine fixed and variable costs.
- Fixed costs are a definite amount and usually do not change overtime (e.g. rent, car payment).
- Variable costs are costs with changing and often unpredictable amounts (e.g. groceries, fuel).
- Distinguish between necessities and wants.
- Ensure that you do not spend more than what you make.
- Set goals.
A budget serves as a guideline to help you prioritize your spending and properly manage your money. The goal of a budget is to minimize expenses and maximize savings. It can help you identify wasteful expenditures, adapt quickly as your financial situation changes and achieve your financial goals. By cutting down on unnecessary spending and increasing your monthly savings, you can put extra money toward important long-term financial goals. Buying a car, purchasing a home, or taking out a loan requires you to know if you can afford the payments each month. By working on your budgeting skills now, you will know exactly what you can afford in the future.