What Is a Budget and How Can I Get One?
It is the dreaded word we have all either grown up to love or hate — budget. I have generally leaned toward the “hate” aspect of that word most of my life, but recently I decided to get a little smarter about my personal finances, so a “budget” has become a less painful thought today than it was a few months ago.
Budget creation is a very personal thing for more than just the obvious reason of it being “your finances”. The method you use to do your budgeting will have a significant effect on whether you keep it going. If you live a busy lifestyle like me, you do not have time for a lot of manual labor when it comes to crunching numbers and balancing monthly expenses.
If you are looking to create a fast, comprehensive budget / savings plan without putting a major dent in your day-to-day life, Mint.com is a great place to go to get started. The site is secure, the service is FREE and setting up your budget is relatively painless thanks to a wizard they provide for you to get the ball rolling after you sign up.
The great thing about this is you can create your budget, customize it to your preference after the initial wizard setup, and see the status of it in real-time without having to manually update anything because it will pull all of that data from your accounts and monitor everything for you automatically. It will even send you notifications in your method of choice when you are over budget, etc.
For those of you that do not wish to put any financial information online, and would rather create a budget in a spreadsheet or other document, you can follow these simple steps:
- Create a document that has two sections (or Tabs): one for fixed expenses and one for variable expenses (those you can play with).
- In the first section, total the amount of money you take in every month, including any additional income like child support, royalties from investments, etc.
- Determine what your total expenses are for bills you must pay each month (utilities, phone, cable, rent, insurance, loans, etc.). This does not include things like gas for your car, tolls, groceries or coffee at Starbucks.
- Subtract the expenses that must be paid from your total net earnings. Note the amount left over — this is the number you will work from to create your monthly budget for everything else.
- In the second section, begin by pasting the amount left over from section one at the top.
- Underneath, list the other incidentals you spend money on each month. It is best to do this with categories.
- Groceries for food, pet supplies, toiletry items and cleaning products.
- Restaurants & Fast Food to cover breakfast, lunch or dinner outside of the home (If you are a Starbucks junkie you might want to create a category for that all by itself, you will be astounded at how much you spend … trust me … I know).
- Automotive for gas, car washes and tolls. You will need to account for oil changes, maintenance and tag renewal here as well. Be mindful of when these things are most likely to occur so you can swap around category budgets to accommodate for the months affected.
- Shopping for buying clothes, gifts for others, accessories for the home, skincare products, etc.
- Entertainment for renting DVDs, purchasing music, going out to the cinema or other activities such as sky diving, bungee jumping or bowling. Because, you know, who doesn’t like to jump out of a perfectly good airplane?
- Savings for money you want to put away. If you are going to do it and be successful, you might want to label this as a “bill”. A “savings” bill if you like. Your savings account then effectively becomes the loan company you pay, and once you do, you forget it’s there. This should only be tapped in cases of dire emergency — that is what it is there for. Sorry, an extra few bucks for a new outfit you really don’t need doesn’t count as an emergency.
- Once you have created your categories, look over your transactions for the last four weeks and total them up for each category. Based on those figures give yourself a goal for each category, meaning — you don’t want to spend more than that set amount. If you are putting money away in a savings account, make sure the money you plan to set aside each month is feasible.
- Subtract the calculated amount from each category from the overall total in section two. Check to make sure you still have a little left over for other unexpected things, like doctor visits or speeding tickets … not that you would ever get a speeding ticket.
- Use this as a template for each month and update as needed (if a rate changes for a utility bill or you need to add in an oil change for example).
Once you get your budget set up, whether you are doing it online via a secure site like Mint.com for free, other online paid budget software solutions like Quickbooks and Budget Planner by simpleplanning.com, or manually on your desktop, it really will help you see where you spend your money, find areas you can save more and keep you on track and organized.
Even if this still sounds a wee bit daunting, just give it a try. Take it from someone who’s been there, it really is worth your initial effort, and it will help — especially if you are someone like me that has to manage every penny.