Now before you cringe and get all worked up over numbers and percentages and what not, just take it easy. It doesn't have to be complicated. You don't need to account for every penny you spend. The goal is to help you live within your means and make sure you are on track to reach your goals. Whatever budgeting system you use to do that is okay!
A budget is simply a tool that shows how much money you expect to earn and how much you expect to spend. It doesn't have to be overly restrictive. Think of it as a way to plan how much you can spend and how much you can save each month.
Sounds easy, right? So why does the word "budget" strike fear into the hearts of many? And why do so many fail to have one? Or if they do have one, fail to follow it? Simple truth...most aren't willing to do what it takes. A budget only works if your are totally honest about your financial situation. And most of us are truthful about our income, But when it comes to expenses, not so much. It can be hard to admit you spent $100 on runs to your favorite coffee shop last month. Or paid $50 dollars for that gym membership you never use. In order for your budget to work, you must be accurate about your spending.
If you do this properly and honestly, a budget will show you where your money is coming from, how much you get each month, and where it all goes. And once you know that, you can make the necessary adjustments to reach your goals - either by finding ways to increase your income or decrease your spending, or both.
I am not going to get into the nuts-and-bolts, nitty gritty of how to make a budget. There are plenty of tools and apps available for that. What works for me may not work for you. It can be as simple as writing everything down with pen and paper to creating a spreadsheet on your computer. As long as it includes ALL of your income and ALL of your average expenses. But I do have some tips that will make it easier.
For my entrepreneurs in the crowd, when figuring your monthly income, I recommend always using your lowest-earning month as your base income. Then if you earn more, it's a bonus!
If you are still working on building your emergency fund, don't forget to include unexpected expenses in your overall budget plan. Until you you have that emergency money stashed, a pricey car repair or medical bill can totally derail your budget. So include that in your plan so you'll be ready.
If your income is more than your expenses, YAY! Put 20% of your money into savings. If your have more money going out than coming in, it's time to take a serious look at making some lifestyle changes if you want to reach your goals.
Your budget isn't carved in stone. Things change. Priorities change. Jobs change. We move. We have kids. Our kids have kids (and if you think that doesn't impact your budget, talk to me! Being a grand can be expensive!). Make sure you review your budget every few months to ensure it's still working for you.
Once you have your basic budget ready, fine-tune it to make it fit your needs. As you get more familiar with your income and spending habits, you'll see areas where you can make changes. Spending too much on credit card payments? Stop using them unless you can pay it off each month. Have a tendency to overspend on certain things? Read my post The First Step to Saving Money - Spend Less Than You Earn for some tips on spending less. And keep learning. Improving your financial skill wand learning how to make your money work for you will greatly increase your ability to meet those financial goals!
