Create a budget and stick to it
So now you’re debt-free; you owe no one and you want it to stay that way. Of course, later on you may want to buy a house or a new car and that’s fine, those things are necessary. However, there are methods you should employ to keep any future “necessary” debts from snowballing away from you. That’s where a budget comes into play. By creating a budget you are tracking every incoming and outgoing penny. Your budget should be strict but it should also be able to be adjusted for any seasonally-affected expenses such as fuel and food. Therefore, try to average expenses over a year.
For example, say you spend $50 on natural gas in July but that cost soars to $150 in January. If you budget $75/month for natural gas, it doesn’t mean that at the end of July you have $25 to spend on whatever you want. What you’ll essentially want to do is place that $25 in “escrow” (a place where it will be safe, be it a savings account or simply earmarking it as off-limits). That way when you do have that $150 gas bill, you’re not faced with any unnecessary budget shortfalls.
Once you have determined which expenses are static and which are dynamic, you can go about crafting a budget that fits your needs and lifestyle. It’s essential to remember an effective budget doesn’t bind you within a narrow set of parameters. A budget is a guide, nothing more, but there is a hierarchy of expenses you can follow to help you get something down on paper, right now.
At the top of your list will always be food. If you don’t eat, nothing else matters. Next you want to stick 5% to 10% of your income into savings. Finally, factor in rent (or mortgage), transportation, utilities, phone and cable (if applicable), and finally, any monthly car maintenance or other similar but immutable expenses.
So you’ve worked out a budget and you probably have some money left over. You’ve got the framework built, now it’s time to dress it up a bit, which means factoring in the fun stuff. Say you take your family out to dinner every week; or maybe every month you treat yourself to a massage; and don’t forget that yearly fishing trip with your friends. Whatever the case may be, experience will teach you what is possible and what you’ll have to save up for. This all must be factored into the final mix so that once you are done, you will have a budget that you can stick to and work with.
Don’t expect the first version to be perfect; you may have to tweak and fiddle with it a bit. But, by all means don’t get discouraged. Keep at it and stay within the budget. You may have to adjust some of the line-items to compensate for changing economic conditions and the unexpected will occur (cars break down, appliances burn out), but soon you’ll be living freely and no longer thinking about managing your money.