The first step when building a budget is to track your expenses. It is best to do this for a full month but even a week can help. If you buy everything on credit and debit cards, you should be able to pull those statements from the past month. This process helps to identify the payment amounts of fixed items like rent, car payments, or student loans while also seeing how much you are spending on more flexible categories like entertainment or eating out. 

The 50-20-30 Budget

Although there are many methods for creating a budget, the 50-20-30 rule is a great way to start. Fifty percent should go towards living expenses, 20 percent towards debt payments or savings, and 30 percent towards everything else. You can find this plan in more detail here. 

In the United States, it isn’t uncommon for housing costs alone to equal 45 percent of income, according to this article from USA Today. If your living expenses are more than 50 percent, you may have to look hard at your items in the “everything else” category and only choose one or two until you can either increase your income or pay down some of your debt. 

Trimming expenses

When you are looking through your expenses, note which items you don’t remember or that didn’t mean much to you. Can you remember what you ate at that restaurant? Was stopping at the coffee shop three times in one week the best choice? This should help you to identify the items that you can reduce in the future. Also, make sure to notice any subscriptions or recurring charges that you may have forgotten about. 

Dealing with debt

If your debt payments are more than 30 percent, you should potentially consider a consolidation loan from a company like Dutchess Partners. Credit cards can charge as much as 24 percent interest whereas a consolidation loan should lower the interest rates, allowing you to pay the debt off faster and in smaller payments.

 
Once you can pay more than the minimum on your debt payments you can reduce the amount in your debt category. You should then be able to create an emergency fund. Keeping some money aside can keep you from needing to use credit in the future and increasing the amount of debt you owe. Having the extra funds should also provide peace of mind. 

Tracking expenses

Once you have created the budget, what is the best way to make sure you actually follow it? Find a method that works best for you. Some people like to use cash for the categories that they tend to overspend on. You take the cash and put it in an envelope or your wallet for the specific period and when it’s gone, you don’t spend any more on that category. Some people use cash for eating out, gas, or groceries. If you like using a debit or credit card, you may want to link your account to a mobile app that tracks expenses. There are several apps that can show how much you spend by category in a certain month. 

Staying motivated

Most importantly, remember your why. Why are you trying to save money? Are you paying down your debt so that you can finally start saving to buy a home? Are you tired of wondering if you’ll have enough to pay your bills? Write your Why on a sticky note and keep it in your wallet or in a prominent place where you can see it every day. If you feel overwhelmed, do the right thing and ask for help. Debt consolidation from providers like Dutchess Partners can help to make the bills more manageable.