So you want to get your finances under control but the idea of a budget is intimidating. Don’t let fear of the unknown stop you from getting your finances in order! A budget is simply a financial document used to track income and expenses. Some people use personal finance & budgeting software, others use cash only / envelop systems, some use custom spreadsheets, and others use old fashion pen & paper.
The trick to being successful with a budget is using a system that you can commit to. The most expensive and sophisticated system will be nothing more than a waste of money unless you diligently use it. I have a background in computers so I tried several types of money management software, but it wasn’t until I created a simple Excel spreadsheet that I found myself being consistent and able to track my spending over a long period of time. Don’t be afraid to try different systems. If one doesn’t work, move onto the next!
Do you need a budget?
The short answer is yes! It is my personal opinion that everyone needs a budget to track where their money is going. If you find yourself with not enough “money at the end of the month” then a budget will allow you to see where your money is going and where cuts can be made to increase your cash flow.
Budgets aren’t just for those with a negative cash flow. In fact, budgeting is an act of financial discipline and awareness that when implemented properly can help you reach your financial goals.
Starting a budget
- Set aside a date and time to get started. This should be sooner rather than later. Set aside a date and time within the next 2 weeks to get started. Decide which budgeting system you are going to use: spreadsheet, budgeting software, envelop system etc.
- Collect your bank statements from the past 3 months, document your income and expenses. This will help you project your budget for the current month.
List all income & expenses
When starting a budget you want to include all income. This includes employment, child support, alimony, and side jobs.
Listing expenses are a little trickier. This is why the past 3 months of bank statements will help you to see where your money is going. Here are some categories to guide you:
- Tithes & Offering
- Mortgage or Rent
- Uilities
- Electric
- Gas
- Water, Trash, Sewage
- Phone
- Food \ Groceries (include money spent eating out)
- Car
- Insurance
- Gas
- Debts
- Credit, Loans, etc.
- Savings
- Emergency fund
- House Maintenance fund
- Car Maintenance fund
- Retirement savings
- College savings
- Holiday & Birthday Budget
- Investments
- Cable
- Beauty budget
- Hair, nails, etc
- Discretionary spending & Entertainment
Next to each item, write down the amount you plan on spending in that area. Use the average spending from your last 3 bank statements. The sum of these items is your total expenses. Hopefully, this number is less than your total income. If so, you have a monthly surplus. That is a great place to be, because it leaves you with options. You can sweep all leftover monies to savings, investments or charitable contributions or you can increase your discretionary spending.
However, if you find your expenses meet or exceed your income. You are living in a monthly deficit. You’ll need to find areas that you can decrease your spending or earn more income. This may be an uncomfortable position, but having a budget in front of you allows you to visualize the problem and work on a solution.
What about you? Do you budget? Do you like to budget? What system do you use?
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