For many, word 'budget' immediately sends shivers down spine. Why in world would anyone need or want to budget their money?
First off, budgeting your money does NOT mean you are poor, or are in need of financial assistance. You'd be surprised to know how many considered to be "middle class", regularly budget their money in order to make most of what they have.
Secondly, designing and implementing a budget does NOT take a Harvard doctorate degree requiring hours upon hours of tedious work.
What is a budget?
Simply put, a budget helps you to track your income and keep your spending habits in check over a certain period of time, allowing you to reach specific goals.
Why Start A Budget
There are many reasons why a family may want to implement a budget. These "reasons" can be labeled BUDGET GOALS. The reason(s) you are budgeting your money.
It is imperative that you actually determine what your GOALS are before actually designing a budget plan.This is what you will be striving for.
Answer question - 'Why do I want to start budgeting my money?' To save for a new house or car? Saving for your childrens' college education? What about an early retirement?
These are all very important goals that many of us will have to face at some point in our lives. And these are some of goals that can be tackled through implementation of a budget.
** Summary - Set Your Goal(s) **
Cash Flow Analysis
It is now time to determine amount of "cash" that comes into your pocket every month, and amount that leaves your pocket every month.
This is one of most important steps in planning your budget, for it allows you to get a whole perspective of your current financial situation. At same time, analyzing your "cash-flow" allows you to actually see where your incomes are coming from and how it is being spent.
Remember, this does not have to be done professionally nor does it need to be time consuming. In addition to that, try not to track every single penny that you spend. You'll drive yourself crazy. A budget should not frustrate you to death.
Start with your income(s). It's best to take it a month at a time so you get a clear, concise view of what you make on a monthly basis. Don't forget to include any benefit or interest payments you receive.
After you have an idea of TOTAL amount you receive monthly, it's time to add up expenses you pay every month. Generally, you can group most expenditures into two categories - fixed and variable.
Fixed bills - mortgage, car, insurance loans, etc...
Variable bills - utilities, phone, car maintenance, entertainment, food, etc...
It is really important that you tally up EVERYTHING that is paid out monthly. That includes all taxes, social security, 401(k) (retirement funds), and any other deductions that you might have taken directly out of your paycheck.
It works best if you write down ALL expenses/bills that you pay monthly.
If you are having difficulty remembering what is paid every month, take a look back through your financial records, checkbook or bank statements for more accurate numbers.