People often do not realize where all of their money has gone at the end of the month; they probably now about where they spent it, but often do not realize just how much it all adds up too.Â The fact is that being unaware of what money is spent on is a great way to forever remain in debt.Â Sometimes just knowing what the money is spent on will lead to savings, as a person remembers that they spent several hundred dollars last month on a certain hobby.
The first step is to start keeping a record.Â A bank account record can be a nice start, but unfortunately it just says that fifty dollars was spent at the grocery store; it does not say on what exactly.Â By taking the time to keep a person record of what all the money is being spent, a person can see where he or she needs to start trimming in order to increase savings.Â The constant trips to the music store can really add up over a month.Â Buying things one at time, instead of in bulk is another way to throw away money each month.
Once a person understands what the money is being spent on, he or she can begin to decide how much should be spent in each area.Â By using the previous monthâ€™s expenditures, a person can create a rough budget of how he or she spent his or her money; the next step can be the most difficult, but a person can create limits on how much is to be spent in each of the different budget categories.Â Radical changes or trying to go cold turkey will often result in heavy splurging.Â Slowly reducing the amount spent in different categories is the first step in obtaining a reasonable budget.
The extra money can then be devoted to savings; the first thing to do is set aside a bit of money for emergencies.Â The money can be place in something simple like a savings account; it will accrue a small bit of interesting, but the money is highly liquid and can be spent should an emergency happen.Â Once money has been set aside for that, a person can begin looking into long term investment opportunities.Â The money invested now will be put towards retirement; sometimes that simple fact is enough to motivate a person to reduce how much he or she spends on luxury items.Â
A budget is a powerful tool and not one that requires any expensive software; there are plenty of different types of accounting software available, but a simple sheet of paper or spreadsheet can work as an effective budget.Â The importance is trying to stick with the budget.Â Though remember that nobody is perfect and sometimes the budget will not work in the first draft.Â Each month a person has to re-evaluate how money is spent; this allows him or her to be smart with his or her money and ensure that it is being spent on the right things, not the right now things