Dave Ramsey says it best, "tell your money what to do." What he means by that is you must have a plan and direct your money on where to go. If you don't, the money will just disappear on purchases you have no idea that you made. And the best tool for doing this is a budget. Here is How to Direct Money Exactly Where You Want It To Go With a Budget.
1. Account for Every Dollar Coming In
Every dollar you earn must be included and accounted for on your budget. If you don't document every dollar you earn, that money with just disappear into the ether. That may be Starbucks coffees, clothing, shoes, beer, cigarettes or worse. Make sure your income section includes all income. Document weekly salaries, bonuses, tips, second income, even money found on the street.
2. Account for Every Dollar Going Out
On the flip side, document every dollar going out. And leave nothing out. If you have a bill for it put it on your budget. If it is a one-time expense, put it on your budget and account for it. If you fall off the debt repayment wagon and charged a credit card, don't ignore it, put it on your budget. Ignoring it will just cause debt to grow. Acknowledging that it was a mistake and adding it to your budget gets you back on track and erasing debt.
3. Be Flexible
From the day you start your monthly budget it will change by the time that month ends. I guarantee it. So you need to be flexible. Let's say you had budgeted $500 towards a credit card debt, but your car breaks down that month and the repairs cost $250 dollars. And on top of that, there is no room on your current budget to pay for that emergency and not enough money in the emergency fund yet. Don't ignore the bill. Or say my budget doesn't work. Change it. Make it work. You have flexibility with your debt repayment. And flexibility with your budget. It is not written in stone. Take the $250 from your credit card payment (assuming the remaining $250 still covers the minimum credit card payment) and pay cash for your emergency. Yes that will set you back a little on your debt repayment. But at least you are not acquiring any new debt.
4. Compare Your Budget with Your Checking Account Statement
If you use a debit card for any purchase keep the receipt and make sure to account for it on your budget. In addition, make sure you check your online or paper statements to make sure any purchases made with a debit card have been included in your budget. Especially if the purchase was an unplanned one. It will prevent you from "forgetting" to account for a purchase that was not in the budget yet.
5. Use CASH!
M-O-N-E-Y. Yes, use cash as much as possible to avoid losing track of what you purchased via a debit card. For most categories (groceries, eating out, entertainment, etc) budget how much you will take out of each paycheck and then take that out in cash. It will prevent you from over-spending.