Taking Charge of Your Finances: Budgeting

How do you create a budget? When people hear the word budget, all too often they have a negative reaction.  The hardest thing about a budget is starting one simply because many folks just don’t know where to start or what to do.  

A budget is necessary to get spending under control.  A person can’t know where they are going if they don’t know where they are, financially speaking.  A budget provides a snapshot of current personal finances.  A realistic budget is a must when creating a financial plan.  It can reveal areas where spending is out of control.  A realistic budget is simply controlling money instead of it controlling you.  A budget is freedom.  It provides peace of mind in a way many cannot realize. 

Getting started is the most difficult part of creating a budget.  Only two things are required.  First, is the realization that money is a powerful ally or powerful enemy.  Second is a commitment to taking charge of spending. 

The financial enemy 

If a person is:

• Living paycheck to paycheck and never getting ahead, financially
• Making late payments most months
• Finds their credit card debt increasing because credit cards are used to offset late payments
• Saving little or no money
• Clueless about where their money is actually going
• Spending more than they are making
• Constantly wondering where their money went and how did it vanish so quickly

Then, chances are they need a budget to get their spending and their life under control. 

A budget is your best financial friend 

A budget is the best way to take financial control.  To create a budget, the first thing is to track all expenses.  This can easily be done with a small notebook.  Get into a habit of writing down every dime that is spent.  Save receipts and at the end of the day, record the expenditures, both large and small.  A better plan is to record purchases as they are made.  

Keep in mind it may take a few weeks to actually get a clear financial picture. This very important first step can run concurrently with the actual creation of a budget.   It is normally a good idea to start your tracking on a payday, but not necessary.  You don’t even have to wait until tomorrow morning to start.  Tracking your spending can begin immediately.  

How to create a budget 

To start a budget, there are no fancy tools needed.  All that’s needed is a piece of paper and a pen. While tracking spending, set up a budget worksheet.  A quick search for “budget worksheet” will give you many choices.  At this stage, it is not as important to get a fancy budget sheet as it is to get a handle on your finances.  Choose a template or create one if you know how to use Excel.  A simple household budget worksheet should work.  

You begin by writing down everything you spend money on during the month.  Setting up your budget for a month-to-month record is normally the easiest method because most people pay the rent or mortgage once a month, and pay utility bills, cell phones, credit card payments, car payments, insurance payments once a month. 

List every bill, which is something you regularly spend money on every month.  The mortgage or rent payment is normally the highest dollar amount you spend every month, followed by a car payment.  Any fixed payments should be listed first. 

Variable spending is where people find themselves in trouble or simply have no idea how much they are spending each month. 

Include a section for:

• Entertainment
• Groceries
• Luxury items
• Child care and pet care
• Gas for the car, public transportation, car maintenance
• Gym and other memberships
• Prescriptions
• Subscriptions
• Clothes, shoes, accessories
• Doctor bills
• Insurance payments
• Movie rentals
• Books, CDs, DVDs 

This list can go on and on.  

Your budget is never fixed in stone, just as a plan for a trip is never set in stone.  You can be flexible when working with your budget.  It can change from year to year or even month to month.   

The most important thing is to get started on your budget, today.