Basics of budgeting money

Don’t be embarrassed if you don’t know the first thing about writing a budget. After all, if you were never taught how to do it then how would you know? Composing a budget isn’t a talent people are innately born with. Even though it’s a fairly simple process, many people don’t bother because they simply don’t know how.

It’s not tough. The hardest thing about budgeting is figuring out how you can make all your income pay all your obligations. The actual act of composing the budget is pretty easy:

1. Figure out how much money you have coming in each month from all sources.

2. Write down all the recurring expenses you have each month, such as utility bills, debt payments, medical insurance, and anything else that remains relatively constant.

3. Write down the expenses you have that each month that aren’t always the same, but are always there: gas money, groceries, entertainment, etc.

4. Write down the ideal amount you want to put toward savings, investing, and/or retirement.

5. If you tithe or give to charity on a regular basis, write this amount down too.

Now you have all the information you need so you can write your budget.

Add up all the obligations you have, including your recurring debt, other expenses, savings, and charitable giving. Take this amount and subtract it from your income. Do you still have money left over? If you do, then feel free to celebrate…having extra money after all things are considered is a great situation to be in.

Is your figure a negative number? Don’t panic if this is the case. There are ways of reconciling this, like cutting back on some expenses or finding ways to bring in more income.

Whether your number is positive or negative, you should still take the time to actually itemize your budget and have it all written down on paper. Grab a sheet of paper and jot these items down:

1. At the top of the page, write your income.

2. Under that, itemize each recurring expense in its own column. For example, one column for your rent or mortgage payment, one column for your car payment, one column for your electric bill, and so on.

3. Add columns for your other expenses that aren’t always the same. Start out at the highest end of the average you spend. For example, if you usually spend anywhere from $250-$350 per month in groceries, write down $350.

4. Add more columns with the amount you should ideally put toward savings and investing.

5. The last column you should place on your paper is the charitable giving that you regularly do.

Putting all these items down on paper can be a real eye-opener. Some folks compose a budget only to realize that they are spending more money every month on Starbucks than they are on their car payment. For some people, just seeing it in print is enough to prompt them to change their spending habits.

If you have a deficit on your budget, start scanning the columns and figure out what you can cut back on. If you decide that you will only spend $250 per month on groceries instead of $350, then maybe the extra $100 per month will cover your deficit.

The trick, however, is to actually follow your budget. Don’t go to all the trouble of composing a budget to only turn around and go right back to spending as you always have. A written budget is an invaluable tool, but only if you actually use it.

While some folks keep a running spreadsheet of their spending throughout the month to make sure they are staying within their budget, other people prefer to use an envelope system where they place the cash for each expense into a specific envelope and then work from those envelopes throughout the month.

Which method is best for you? Choose the method that helps you stick with your budget. The envelope system works well for some people because there is something about watching actual cash deplete that makes them want to hold onto it longer. A spreadsheet is good for people who don’t want to deal with cash. Either way, sticking to your budget is a fantastic way to get your finances in order.

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