Smart Budgeting for Beginners

Throughout life, we learn many lessons, from how to read to how to add two plus two. At 16, many of us learn how to drive a car. As we venture into adulthood, we might learn how to apply for a job and nail an interview.

Unfortunately, throughout all of life's lessons, many individuals do not learn one of the most important: how to budget money.

Many people go through life not really knowing how much money they have coming in and knowing even less about how much money they have going out. They might go out to dinner here, hit the mall for some shopping there. And at the end of the month, they wind up scratching their heads wondering how they ended up in so much debt with no money in the bank.

Fortunately, you do not have to be a genius to learn how to budget. It just takes some easy-to-follow steps to create a budget that will help you to become and to stay debt-free.

Step 1: Identify your fixed expenses.

Your fixed expenses are those monthly bills, like your mortgage or car payment, that you know you will have each month. These expenses have either a fixed amount or can at least be estimated, such as your utility bills.

While these expenses represent a fixed, rarely fluctuating amount, many consumers do not know how much they owe each month. As a result, they spend too much on non-essential items, unaware of how much money they will need in the bank to cover their bills.

The first step in creating an effective budget is to determine what your fixed expenses are for each month. You want to make sure that you do not leave out any necessary bills. There is the monthly mortgage or rent. Many consumers maintain a car payment. Then, there are the necessities, such as groceries, gas and utility payments. And don't forget about those pesky credit cards.

Once you have your monthly estimated total, you then will know how much money you need to set aside each month to cover all of your bills.

Additionally, you will want to make sure that you have enough funds left over to act as a financial cushion or with which to start a savings account. Many individuals fall into debt when unforeseen events occur, like the car breaking down, and they do not have any savings on hand to cover the unexpected expense.

Another important component of identifying your fixed expenses is to determine whether your monthly income is enough to cover them. In a culture based on consumerism, many individuals live beyond their means without a care - that is, until all of those bills come due. If your fixed expenses happen to exceed your monthly income, you will need to take a closer look at them to see what can be cut.

Step 2: Uncover hidden spending.

Everyone has purchased these occasional items from time to time - a cup of coffee on the way to work or a quick bite to eat with a friend. These items are the incidentals of life. And often, individuals do not account for these expenses when they budget, and as a result, they mysteriously wind up short on funds.

The best way to find your hidden spending on incidentals is by keeping a record of them for a month. Keep a notebook with you and jot down any unbudgeted money you spend during that time period. You will be surprised how quickly those $5 cups of coffee can add up.

Additionally, identifying your hidden spending and keeping a physical record of these expenditures can help you in reining in your unbudgeted spending by making you more conscious of each dollar you spend.