Whether you use a spreadsheet or budgeting software, tracking incoming deposits and outgoing expenses is essential. This allows you to distinguish between necessities and wants, such as gasoline or a monthly music subscription. 

Creating a budget and sticking to it can be challenging, especially when life throws you a curveball. That’s why it’s important to review your budget regularly. 

1. Make a list of all your expenses. 

Make a list of all your expenses—everything from rent or mortgage, utilities, car payments, insurance and debt repayment to daily spending such as entertainment and dining. You can use credit card and bank statements to help get an idea of what you spend on a monthly basis, or online budgeting calculators and spreadsheets. 

Be sure to consider your emergency funds and other savings goals in this list. Then categorize each expense as either fixed (such as bills) or variable (such as groceries, gas and dining). Look at your past three months of spending to find an average cost. Then compare that with your income to see where you need to cut back or save more. 

2. Set a budget. 

Making a budget is one of the best ways to track your spending and keep up with your financial goals. There are many different methods for setting up a budget, so it’s important to find one that works for you. The most important thing is to make 

sure you’re spending less than you’re earning. Start by tracking your income, including net income (total wages or salary minus taxes and employer-provided benefits). 

Then, subtract all of your necessary expenses from your income to see how much you have left over each month. Finally, decide how you want to spend your remaining funds, whether it’s on a hobby or on building up savings or paying down debt. Review and adjust your budget on a regular basis to make sure it’s still working for you. 

3. Create a savings account. 

After tracking your expenses, you can put a portion of your income into a savings account. This can be done with direct deposit or automatic transfers from your checking account. You can also make it easier to save by making it part of your regular routine. 

Savings accounts can help you reach specific financial goals, such as building an emergency fund or saving for a home down payment. They also offer a secure place to hold your money and typically earn interest, which can increase the value of the funds.

The type of savings account you choose should be based on your reasons for saving and the amount you’re able to save each month. To help you stay on track, it may be helpful to have multiple savings accounts, such as one for each goal or purpose. 

4. Set a spending limit. 

Keeping track of every expense is essential for reaching your savings goals. Use a notebook or budgeting software to record your expenses for several months to get an accurate picture of your spending habits. Once you know what you spend, and how much you bring in, it’s easier to set a spending limit for yourself, even if that means limiting yourself to a weekly fancy coffee or bi-monthly movie night. If you have a credit card, agree on a monthly limit with an authorized user and review your account regularly. 

5. Make a plan to pay off debt. 

Debt eats into your disposable income, making it harder to save and pay for everyday expenses. Before you start paying off debt, tally up what you owe and how much you are paying each month on each bill. Then, look for ways to trim your budget or reduce spending to put extra money toward the debt payments. 

For example, if you regularly buy lunch at work or spend too much on entertainment, consider switching to cash-only purchases. This can help you avoid impulse buying and eliminate extra fees that may come with credit card use. Then, use the avalanche method to pay down debt, starting with the highest-interest accounts first. Having a specific plan and putting it into action can make you feel accomplished as each debt gets paid off.

Many people don’t know how to budget and find themselves in a situation where they cannot avoid bankruptcy due to poor money management. Consult a Harrisburg, PA bankruptcy attorney if you are in need of financial help or bankruptcy assistance.