A budget is the most effective tool in your personal finance toolbox because it helps you make the most of the money you earn and save—however little or great. According to Real Money 101, a publication put out by the New Jersey Higher Education Student Assistance Authority, you should begin mapping your budget with the following four categories:
Once you know where you want your money to go, then you need to figure out where it is going each month and how much you're making. Keep track of all your expenses, writing them down in detail—everything from your car payment to your morning donut and late-afternoon bus fare. Then calculate your total income, including wages and even that monthly mad money from Grandma. Ultimately, you want to subtract your expenses from your income and see how much is left over. Remember, your expenses include money for your bills, money you save, money you invest and money you give away.
Ouch! Do your expenses exceed your income? It's time to either reduce your spending or increase your income. Otherwise, debt is your only option and the deeper you sink into that, the harder it is to pull yourself out. Good money habits lead to financial freedom.
That is especially true when it comes to plastic. The urge to just buy it all can be really strong, especially if you've got a credit card in your pocket. But, buyer beware! Credit cards come with some serious responsibilities. So, before you sign up for your first piece of plastic, make sure you do the following:
When you repeatedly overspend and don't pay off your credit card bills, you earn what is called "bad" or "poor" credit. Poor credit sticks with you for a long time and affects your ability to get school loans, buy a car, buy a home and start a business. So charge with care!