Run the Numbers

Making a budget — and sticking to it — is the first step to being a smart money manager. But only 1 in 3 Americans has a dedicated monthly budget for spending. Here’s how to get started.

1. Gather your credit card and bank statements (at least several months’ worth so you can get an accurate picture).

2. Grab a notebook and pen or create a new Excel document on your computer.

3. Divide your expenses into two categories: Needs and Wants.

   • Needs are non-negotiable expenses, such as housing costs, car insurance, utilities and debt repayments (such as student loans).

   • Wants are “nice-to-haves” like movies, dining out and clothes.

4. Note whether these expenses are fixed or variable.

   • Fixed expenses stay the same every month, such as your mortgage or rent.

   • Variable expenses can change from month to month, such as groceries. For variable expenses, look at a few months’ worth to come up with an average.

5. Factor in one-time expenses such as homeowners’ insurance or roadside assistance. For those expenses, divide the total cost by 12 to get a monthly cost.

6. Make some cuts. As you go through the list, you’ll probably see some expenses that can easily be trimmed from your budget.

7. Subtract your expenses from your total take-home pay.

Where Do You Stand?

You’ve run the numbers. Now you know where you stand. Do your expenses exceed your income, forcing you to rely on credit cards? Are you barely breaking even with no money left over for savings? If so, it's time to readjust.

Many financial advisors suggest applying the 50/20/30 rule to your budget.

• 50% goes to essentials like housing, food, utilities and transportation.

• 20% is for savings, debt payment and long-term financial goals.

• 30% is for personal wants like dining out, travel and entertainment.

Revisit your budget every few months. Consider online budgeting tools that will automatically pull in your expenses.

Simple Ways To Cut Costs

A few changes here and there can make a big difference in your budget.

• Make a list and check it twice. The average household spends $3,744 a year on groceries. And a good chunk of change is spent on those can’t-resist impulse buys. Slash your costs up to 23% by making a list every week and sticking to it.

  • Annual savings: $861

• Cut the cable. Cut the cable cord and consider switching to a streaming service instead. The average cable bill is around $100 a month but you can get a basic streaming service package for around $20 a month.

  • Annual savings: $960

• Turn down the heat. Invest in a programmable thermostat. Keep the temperature on its energy-saving settings for long periods of time (such as during the day when no one is home).

  • Annual savings: $180

• Ditch the daily latte habit. At $4 or more a cup, a coffee a day quickly adds up. Make that drink a special treat and grab a cup just 2 days a week instead of 5. Develop a craving for saving!

  • Annual savings: $624

• Shop around. Take a look at your recent cell phone bill. Is your current plan right for you? Find a plan that better matches your usage. Then ring in the savings.

  • Annual savings: $331