Now that you have some money saved up, or you have a goal to save for, keeping track of where it goes and what you use it for is one of the best habits you can get into. If you’ve gotten paid for work, or have money from saving that you’ve spent without thinking about it, you probably know that feeling of ‘Where did it all go?”

We’ve all been there:  too much month, not enough money.  Even when you have a steady paycheck, it can be hard to make your money cover everything. So what do you do?  

A budget is one of the most useful tools you can use.  You can get fancy with it, use coloured charts or simple envelopes to sort your expenses, but at the heart of it, a budget is just a way to organize your spending so you meet your personal goals.

Budgets can be a bit intimidating if you’ve never set one up, but it’s really pretty simple. Usually, a budget tracks your monthly expenses, since we pay most of our regular expenses, like housing or insurance, once a month. You record what you spend every day, and you can see every month where your money goes. That lets you multiply your monthly expenses and your monthly savings by 12 to see what will happen over the next year, if you keep to your current habits.

If you have a goal, like a vacation or buying a car or a house, to save for, then you can make adjustments to your monthly spending to see what your savings will look like at the end of the year, or even a few years down the road.

See? Easy, peasy!

So let’s set up a budget to see what it’s really good for, shall we?

There are all sorts of ways to keep track of your spending.  You can go ‘old school’ and just write everything down in a notebook, or you can use a mobile app or a software program and harness the power of your computer (which can be really fun, since you can experiment with different plans easily). Whichever way you choose though, you’ll want to split up your expenses into a two categories: Fixed and Variable.

“Fixed” and “Variable” may sound complicated, but they really aren’t.  

If you pay the same amount every month for something, like your mobile bill or your rent or car payment, that’s a FIXED expense – you can count on it staying the same month after month. The expenses that change – like how much you spend on lunch or shopping, or unexpected expenses like replacing your mobile because you dropped it running for the Luas – are called VARIABLE. Get it? They VARY from month to month.

Once you start recording your expenses every day, you’ll see that you spend more often on some things than on others, and understanding the pattern to your spending can help you cut back where you feel like you’re spending too much, so you can save more or put more money into something that is more important to you. To help you understand the patterns, you can assign a category to each expense, like ‘Rent’ or ‘School Books’ or ‘Entertainment’. You can use as many or as few categories as you like, and you can have subcategories when you need them; for example, ‘Movies’ and ‘Concerts’  can be subcategories to ‘Entertainment’.

As you start working  and have money coming in every week or every month, you’ll want to keep track of that too, so you need a section called ‘Wages’ where you record the date and amount you get paid, along with any taxes that your employer withholds on your behalf to cover your income tax, but that’s a whole other lesson!

You can record gifts of money that you get too – birthday or Christmas money from Gran, or maybe that Science Fair money you won last year.  All of it can go into a section called ‘Savings’ that shows the money you have on hand when you start your budget, as well as anything you decide to set aside from your income.

Now that you have your budget set up to show how you spend money, you might find that you’ll change how you do it as you go along.  For instance, when you have a car you may find that you’ll need to budget for parking as well. The next step is to decide exactly what your goals are over the next few months or year and even over the next few years, and where you might want to make some adjustments to how you spend your money so you can meet those goals. Once you do that, you’re all set!

First though, have a look at the next worksheet to actually set up a budget and play with it to meet some goals we’ve set for you!