The road to financial solvency starts with a budget. Making a budget can rank among the most tedious of household chores, but it's a vital step for buying a house, getting out of debt and saving for retirement.
The government website GobiernoUSA.gov offers help in four easy steps. As the site notes, no fancier equipment than pencil and paper is necessary to get going.
The website is in Spanish, by the way, but contains an accurate translator as well as a link to the English-language version of the site.
Step 1: Track Your Spending
Write down all fixed monthly expenses, including cash expenses, and add recurring expenses such as car registration and tax preparation fees.
To get a better idea of where the money goes, track expenses for at least two months. Some months are more expensive than others.
2. Track Your Income
Next, write down all net income for at least one month. Include wages, unemployment benefits, bonuses, tax refunds and freelance income. If your income varies from month to month, average it for the past year.
Ideally, you'll set aside money aside each month toward retirement, or at least as a rainy day fund for emergencies.
3. Make a Budget
First, create a document with two columns. One will list your monthly income, and the other will list your monthly expenses. (Here's a sample from the FDIC; scroll down for the worksheet.)
Second, separate expenses into fixed and flexible items. This helps prioritize expenses.
Third, check if your monthly expenses exceed your monthly income. If so, it's time to reduce your expenditures or increase your income. The latter is usually more doable. Consider downsizing your mobile phone options, turning down the heat, or taking the bus instead of driving.
4. Stay Flexible but Focused
If you set up your budget and discover that your income exceeds your outgo, you're golden. If not, these simple steps will help you find your way to financial security. Above all, though, remain flexible. Life is a journey through the unexpected, and requires adjustments.
For follow-up tips, Consumer.gov has a wealth of handy advice.
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