Seven Budgeting Basics

A budget is simply a plan… a plan that you make to tell your money where to go. A written budget will show where every dollar you goes and make your income work for you. Getting started is easier than you might think!

1. Track your spending for a month.

The first step in setting up a budget is to figure out how much money is coming in and how much is going out each month. You probably have a pretty good idea how much is coming in, but you may be surprised to see how much is going out.

2. Categorize your expenses.

You can come up with whatever makes sense to you, but some common categories are:

    • Savings & Retirement

    • Housing & Utilities

    • Food

    • Transportation

    • Medical/Health

    • Personal

    • Recreation

    • Debts

3. Pay yourself first.

Even if you can only save $5 or 10 each week, do it! The quickest way to wreck a budget is not having an emergency fund. When those unexpected expenses come up, you need to be prepared.

4. Figure out where adjustments are needed.

Are your expenses in line with your income? Maybe you found some money leaks… you know, those little expenses like fast food and movie rentals that really add up over a month’s time. You might not be able to do much about your fixed expenses, such as housing and utilities, in the short term; but you can take of control of those money leaks.

5. Reconcile your outflow with your inflow.

If you are fortunate enough to have more coming in than going out, you need to assign it a job; maybe paying down debt or adding to your emergency fund. If your outflow exceeds your inflow, you will have to cut some expenses or create additional income. This is the most important part of budgeting, because it’s the part that calls for action. Don’t forget, this is a process, and it may take two or three months to make your budget reconcile.

6. Use cash.

This is especially important for variable expenses like groceries, clothing, and entertainment. For example, withdraw only the amount of cash that you plan to spend in a shopping trip and discipline yourself to spend only that amount. Spending cash is much more painful than using your debit card!

7. Stick with it.

Your budget won’t be perfect the first month, or probably even the second month. It takes time and persistence to develop a written plan that will work for you. Keep in mind that your budget will change over time, hopefully for the better if you pay off debt or increase your income.

A budget is a powerful tool that you can use to change your future. A certain amount of self-discipline is needed, but the effort you put forth will be worthwhile as you take control of your money.