A budget is the foundation of your financial health. Want to know if you can afford a vacation? How much can you save for retirement? How quickly can you pay off your debt? These questions can all be answered if you have a budget. To find out how much you might benefit from creating a budget, check out my survey (a post published on Info for Investors’ site that I wrote).
What Is A Budget?
What is a A plan showing targets for income and expenses over a fixed time period, such as a month or a year.? A A plan showing targets for income and expenses over a fixed time period, such as a month or a year. is a listing of your income and the amount you can afford to spend on your expenses. Income includes your wages and returns you get from any investments you have. I’m going to assume that most of my readers don’t have a lot of investments (yet) or want to save the returns from any investments (as opposed to spend them), so my discussions of budgeting will include only wages as income. Expenses include every dollar you spend, from income taxes to housing costs to food to fun stuff like vacations, sporting events and going out for a nice dinner and drinks.
To be clear, the budgeting process is to your financial health what cleaning your bathroom is to your physical health. Most people don’t find creating and sticking to a budget to be much fun. The longer you put it off, though, the harder it is to do. If you don’t clean your bathroom or make a budget, you can end up with physical or financial illness that can be really hard to overcome. However, if you make a budget, you’ll be much more confident in your financial decisions. You will be less likely to run up more debt than you can afford to re-pay and will be more likely to have enough money on which to retire, as recommended by my friend who didn’t keep a budget for most of her life and faced a financial disaster..
How to Create a Budget
Here is how I develop my A plan showing targets for income and expenses over a fixed time period, such as a month or a year.. I’ve written a step-by-step series of posts that follows these steps. I’ve included links in each section below to the post(s) that cover each topic.
Identify my financial goals
Since I’m retired, my financial goals focus on making sure my husband and I have enough money to last until we die and maybe have some left over for our children. For most of you, your goals may include paying off student loans or credit card debt, building enough savings to cover emergencies (see this post for more info on emergency savings), improving your credit score (for more info, see this post), saving for a house (see this post for more info on saving for large purchases) or making sure you have enough money to support your own children. In the longer term, or even now if you are fortunate enough to be able to save beyond emergency savings, you’ll want to set some goals for retirement, as described in this post.
Determine the length of period I’m going to include in my budget
A month and a year are the most common time periods used for budgeting. I find it easiest to estimate costs by year, as I pay some expenses only once or twice a year. Examples of those are property taxes (if you own a home or condo) and insurance, though some people pay those on a monthly basis. For many of you, developing a A plan showing targets for income and expenses over a fixed time period, such as a month or a year. on a monthly basis will be easier. That’s fine too. You’ll just have to be careful to include all of your expenses, even the ones you don’t have to pay every month.
Create a spreadsheet
I use a spreadsheet for tracking my actual income and expenses that form the basis of my A plan showing targets for income and expenses over a fixed time period, such as a month or a year.. I suggest looking at the most recent six months at a minimum and a full year if you have the time and patience. I’ve included a link to a free spreadsheet I created that you can use to follow along with the rest of these budgeting steps.
Enter my expenses
I next enter all of the checks and cash transactions from my checkbook into the spreadsheet and identify the type of expense. Yes, I still write checks and, no, I don’t have a debit card. For many of you, you’ll want to look at your bank statements (on line or paper) to see what bills you’ve paid and what charges you’ve made on your debit card.
I then look at my credit card statements and put those expenses into the same spreadsheet, identifying the type of expense. This post describes ways to track expenses and this post explains how to enter these expenses in the spreadsheet.
There are also expenses you pay less often than monthly. If you haven’t paid them during the period you tracked and recorded your expenses, you’ll need to add them to the spreadsheet, as described in this post.
I then add up all my income and expenses and review them to make sure I didn’t make any mistakes entering the information. The spreadsheet will do the addition for you. This post gives you tips on finding and fixing any entry errors.
Enter my income
The next step is to figure out how much income I’m going to earn during my budgeting period. This post tells you how to enter you income in the spreadsheet I provided.
Create a first draft of my budget
I next make a first pass at the expense part of my budget by looking at how much I’ve spent and whether any of my expenses are going to change. This post provides details on how to get started.
Refine my budget
If expenses are more than income, you’ll need to figure out whether you want to increase income (get a second job?) or decrease expenses. If your expenses are less than your budget, you can start thinking about paying down debts, saving for retirement or saving for other big purchases (in that order). This post provides insights on how to bring your A plan showing targets for income and expenses over a fixed time period, such as a month or a year. closer into balance. I’ve included links to posts by many other bloggers in hopes that at least a few will resonate with you.
Monitor My Expenses
Lastly, I make sure that I am not overspending my budget. Every time you make a purchase, especially if your income is less than or not much more than your expenses, you’ll want to consciously think about whether this particular expense is in your budget. This part of the process is similar to going on a diet. Just as every calorie counts, every dollar counts. If you blow the budget by just a little bit every once in a while, it probably won’t be a big deal. But, just like you are not going to lose your desired weight if you have a DQ Blizzard (Tim Horton’s donut for my Canadian readers) every day for two weeks, you will not meet your financial goals if you are consistently purchasing things that aren’t in your budget. I’ve provided a monitoring spreadsheet and an explanation how to use it in post.
I’m sure all of that is a lot of information. Don’t worry! Just follow along with the steps in the posts above. They were written to be read once per week, so take your time. Once you have your A plan showing targets for income and expenses over a fixed time period, such as a month or a year. prepared, you’ll be in a much better position to make other financial decisions.