Set goals

Effective money management starts with goal setting. Knowing you will need a certain amount of money in advance will allow you to plan a budget to reach that amount, while at the same time enabling you to deal with day-to-day expenses. Personal financial goals should be realistic, specific, measurable, and defined within a time frame.

Watch your spending habits

Before you start planning your budget, keep a record of everything you spend during a one-month period by saving your receipts and recording your purchases. This will allow you to determine your spending patterns and help you identify areas for improvement.

You will soon see how quickly “spare change” expenses add up. For example, you find a five-dollar bill in a pair of pants you haven’t worn in a while, so you decide to treat yourself to lunch instead of bringing something from home. If this happens three times in one month, you’ll find yourself randomly spending $15—money that could have easily been added to your savings account, put toward an important purchase, or used to reduce your debt.

Determine your financial situation

Now determine where your money is coming from. Consider every source of income: paycheck (after taxes), gifts, allowance, etc. It’s best to figure out your average monthly income, because many bills are paid monthly. For each type of payment, figure out how much money you receive in a year and divide it by twelve. If the amount varies from year to year, estimate an average amount.

Create your budget

The next step is to create a budget, based on what you have learned, that factors in your fixed and variable expenses. Fixed expenses are those that remain consistent every month, such as rent, car payments, and insurance. Variable expenses are those that tend to vary from month to month, such as food, clothing, and entertainment.

Want to estimate your budget now? Use Visa’s easy budget worksheet.

Make any necessary revisions

Budgeting is an ongoing process. You will need to review and maybe revise your spending plan on a regular basis.

What should you cut first when your budget falls short? That’s a hard question to answer; it varies for every situation. Generally, the most common overspending areas entertainment and food, especially away-from-home meals. Buying less expensive brands is a common budget-adjustment technique.

Smart tips

• Ask yourself if you can pay for everything you really need
• For each purchase, consider whether it’s smarter to pay by cash or check
• Pay your bills on time
• Create a spending plan and to stick to it
• Note how you are spending your paycheck
• Save money out of each paycheck
• Keep track of your income and note whether or not it’s regular
• Remember to create a financial plan to reach your money goals