What is a budget?
A budget is an itemized summary of likely income and expenses over a given period. As it relates to personal finance, budgets are an invaluable tool to help prioritize your spending and manage your money. No matter how much money you have, budgets provide an up-front, organized summary of income and expenses. Budgets can be made for different lengths of time and can be combined with other tools. Learn more...
How do I create a budget: 3 Steps
- Financial Goals: Before creating a budget, you should establish some financial goals. Setting financial goals will help drive your budget. For example, perhaps you want to save for a large purchase? If so, factoring in a certain amount of money per money towards savings will help elements within your budget.
- Track spending
The best way to understand where your money goes is to track your weekly spending. This small step will help you realize where your hard earned money is being spent. Once you understand where you spending your money, it will become easier to take control of what you are buying and cut out any “useless” expenses.
Remember: TRACK EVERYTHING! That iced coffee each morning at $2.50 certainly adds up over the course of a year.
- Use this worksheet or create your own
Have you noticed anything after a week of tracking your spending? Are you spending more money than you have? Are there any areas for saving (i.e. cutting down on those iced coffees or utilizing your pre-paid meal plan as opposed to going out every night?)
- Develop a Budget
Now that you know where your money is going each week you are ready to create a monthly budget. Having a budget (and sticking to it) will allow you to spend your money more appropriately. The best part about a budget: you are the one creating it so you chose where your money is spent.
Helpful Hints when creating a budget:
Create a budget that fits your lifestyle. If you enjoy going out to eat, budget for that expense. Odds are if you create a budget that does not fit your lifestyle you will not stick to it anyway.
Spend less than you make. I know this sounds obvious, but if you create a budget in which you are spending less than you make you avoid carry over debt from month to month. AND you can put that extra money into savings.
Keep it simple. Pretty self-explanatory. Try and avoid a confusing budget. Too many categories can get confusing.
There are many budget templates and worksheets available. This particular template allows you to assign a monthly figure for certain expenses and then compare what you actually spent to see if you stayed “within your budget” during the month.
- Sample Budget worksheet or ceate your own
Try an online money management tool:
Budget Simple (www.budgetsimple.com) Budget Simple works under the simple philosophy that to create a balanced budget you must spend less (or equal to) what you earn. It's designed to be simple enough for anyone, and best of all it's free!
Mint (www.mint.com ) A popular resource for many people, Mint.com tracks your spending and allows you to customize your own budget. Best of all, it is free to join!