In a weak economy, one way to feel stronger is to create a budget.
NEW YORK — Feeling powerless in an uncertain economy? One way to take control is to create a budget.
As mundane as it sounds, you may be surprised at what it reveals about your spending habits. Knowing precisely what you earn, spend and save is also the first step in meeting long-term financial goals.
There’s no single method for calculating a budget, but a few key points will help you capture a better snapshot. Here are a few tips to get you started.
• Find a method that suits you. There are plenty of ways to track your spending. Online tools help you analyze and manage finances. Software or an Excel spreadsheet can assist.
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But ultimately a simple pen and notepad may be the most useful starting point. Carrying a pad can help you record those small purchases that may not always be planned.
Another easy way is to review credit- or debit-card statements.
• Separate fixed and discretionary spending. Fixed costs include items such as rent or mortgage, utilities and groceries. These are bills that you may be able to trim, but can’t entirely cut.
Nonessential spending includes eating out, cable TV packages and gifts; this is the area where you’ll probably be making the most changes.
• Track all of your expenses, especially cash purchases. Forgetting to factor in ATM withdrawals is a common mistake — even though it can account for a big chunk of your spending. To keep closer tabs on where your money goes, use your debit card whenever possible and keep ATM visits to a minimum, said Michael Kresh, a certified financial planner in Islandia, N.Y.
To get a more realistic sense of your expenses, many financial planners suggest looking at spending over a three-month time span and taking an average. This will enable you to set a more accurate target for monthly spending in a variety of categories.
In the end, recognize that a budget is meant to be a guide to help you live within your means. While you’ll want to be disciplined in tracking your spending, recognize that unexpected events will arise that may throw you off course. The key is to get back on track as soon as you can.