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A budget is a plan that shows how much income you will have, how much money you will spend, and how much money, if any, will be left over. It is an important tool for saving and investing money, because it shows you how to make your money go further, how to cut down on buying things you don’t really need, and how to save for things you cannot afford to buy right away.

How to create a budget:

In order to develop healthy spending habits, you must know exactly where your money is going in. For at least one week (but preferably for a whole month), make a list of everything you spend money on. Also record all income you receive in the same time period (allowance, job, gifts, etc). You can use our budget worksheet.

Look at your total spending for the month. Figure out where you can cut back on your spending. For example, could you have saved money by attending a matinee movie instead of an evening show? Would it be cheaper to bring your lunch to school instead of buying it each day? Or perhaps a name-brand item of clothing cost twice as much as the generic version.

Create a budget. Look at the amounts you received and spent, and for each category write down the amount that you plan to receive and spend over the next month—keeping in mind ways that you can save money.

A good rule of thumb is that you always pay yourself first, no matter what. “Paying yourself” means setting aside money for saving or investing, and including this amount in your budget. Also, be sure to plan to have a little money left over (a surplus) at the end of the month. You can use the surplus if an unexpected expense comes up. At the end of the month, if you have money left over, put it into savings.

Monitor your budget. Sticking to a budget can be a challenge in the beginning, but it gets easier the more you do it. Try it out for a month, then at the end of the month you can make adjustments where you feel it’s necessary. Just remember that you have a limited amount of money coming in so you must have a limited amount of money going out.

When you are about to make a purchase, ask yourself:
  • Do I really need this?
  • Will I be sorry later that I bought this?
  • Is it in my budget?
  • Can I afford it?

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