Six Steps for Personal Budgeting: Where does all the money go?

Does it seem like your money disappears as quickly as you earn it? Curiosity about that “phenomenon” is a great cue for the start of a successful budget plan. Follow that spirit of inquiry to find out where all your money has been hiding and put some structure in place in the form of a personal budget.

1. Calculate income and expenses, using statements or online banking records. Platforms and apps like Mint, You Need a Budget (YNAB) or Honeydue may be helpful, especially when you reconcile actual expenses against budget.
   
   Or, for an old-school tool, you can write down every penny you spend in a small notebook you carry with you. Just like keeping a food log, writing down every expense helps some people stay in the mindset of examining their habits. If that’s not for you, budgeting apps or an excel spreadsheet work, too.
   
   Give each dollar a name. Be sure to itemize all the things you pay for with apps like Paypal or Venmo. You can’t manage what you don’t know, and recurring payments via these apps can be particularly sneaky, because it’s easy to forget what you’re paying for month after month.
   
   
2. Evaluate wants versus needs. After you’ve gotten honest about your needs, you can create a realistic budget that prioritizes the “must-haves” and puts guardrails on expenses that fulfill wants. Uncovering all the wants you’re currently paying for helps you find money that you could divert to needs like savings, home maintenance or more than minimum payments against debt.
   
   
3. Note variable and periodic expenses for the year. Then calculate the monthly average and set that amount aside each month so you’ll have enough cash to cover that oil change or annual checkup. (Speaking of checkups, if you are covered by a high-deductible health plan or if your employer offers a flexible spending account, be sure and take advantage of tax-exempt accounts to pay those eligible expenses.)
   
   
4. Start an emergency fund for the unexpected. Surprise expenses will pop up, and when they do, having a “rainy day fund” can make a big difference. Everyone’s situation is different, but one common recommendation is to set aside three to six months’ living expenses in a regular savings or money market account. If that’s a stretch for you, work toward a goal of $1,000 or perhaps aim to cover your car and/or home insurance deductibles. Any amount is better than none!
   
   
5. If your income is irregular, try this exercise: Ask yourself, “If I could afford only one thing this month, what would it be?” Write it down. Then ask yourself, “If I could afford only one more thing this month, what would it be?” Keep asking that question, and you’ll end up with a list of priorities (ideally based mostly on needs). As money comes in, prioritize the items that show up early in the list.
   
   
6. Aim for establishing a positive monthly cash flow. That’s your income minus expenses with an amount left over, no matter how small. Establishing a habit takes time, and you can build on your success. Your first budget won’t be perfect, but as you continue to work your plan and refine your budget, you’ll begin to feel more confident that you know where your dollars are going and less like money just “disappears.”