Budget, It's Not a Bad Word!

In my first two posts I wrote about where I think personal finance ends (giving) and the rock that you need to build upon (contentment).  Now it's time to get down to the nitty-gritty of what it takes to win with your finances.  The place I would advise you to begin is not very popular at all!  Most people don't want to hear the dreaded B word, but it is a must – BUDGET!  

It seems that most people think about budgets the same way they think about classroom rules doled out by one of their (least favorite) teachers in school. But that is not the case at all.  My background is in elementary education.  I was always taught that good teachers should allow students to have a part in making classroom rules and should make them feel like it was their idea.  This gives the student ownership of the rules, and makes it more likely that they will follow them.  Guess what?  Your budget is your idea, your rules, and you are the one in control!  When you learn to budget, and actually stick to it, you'll experience a certain level of freedom with your finances.  If you think you don't need to budget, though, your money will continue to dictate the rules of the game, and you'll often find yourself wondering where it all went and how you will make it to the end of the month!   

So, how do you actually DO a budget?  Really, it's pretty simple.  I recommend a zero-based budget, so that's what I'm going to tell you about.  The first step is to write down your household income.  Next, you list out all of the expenses that you can think of for that month.  Everyone has some regular bills that are paid every month as well as some that may only be paid a few times throughout the year.  There are also the costs associated with things like groceries, transportation, entertainment, etc. (you may want to spend a month tracking some your expenses to get a better idea of how much you need to budget).  Try to think of everything you will have to spend money on for the month.  Finally, subtract your expenses from your income.  If you've done your budget correctly this should equal zero.  If you come up with a negative number, obviously you're going to need to cut some of your expenses.  If you have some money left you need to look back and see if there is somewhere in your budget that you need to allocate more money (Hint: If you have debt, there's your answer!  If you don't have debt, maybe you need to beef up your savings!).  

Once you have your budget set up that does not mean you can just cruise through the month until it's time to set up the next budget.  Part of successful budgeting is tracking every single dollar you spend during the month.  If you see that you've spent half of your food budget at the end of the first week, there's going to be a problem!  One thing you can do to help you stay on track is use cash envelopes.  Instead of constantly swiping your debit card for things like eating out, entertainment, and groceries, you take cash out of your account and put it in envelopes labeled with the different categories of your budget that you want to use cash for.  Once the cash is gone from an envelope, that budget category is finished for the month!  Tracking expenses is a must if a budget is actually going to be beneficial to your finances.  

The next question you may have is where to do your budget.  The answer really depends on your personal preferences.  If you are old school you may want to actually get a notebook or legal pad and write out a budget by hand.  If you like this idea there are many forms available online or in various books that you can copy and use as well.  In the early years of our marriage, before we even really knew what we were doing, Amanda and I “budgeted” on legal pads.  From there we moved on to using a spreadsheet template that I found online.  If you are really into using spreadsheets you can create your own, or find one online like I did. Both of those ways (paper and spreadsheet) get the job done, so if one of them suits you best, go for it!  The way I prefer nowadays is an online budget.  There are several options available that you could find by doing a simple search.  I suggest just playing around with a few of them and seeing if there is one you like best.  Just this year I started using a new one and have found it to be really easy to use.  If you'd like to know where to find it just track me down, or shoot me an email (see below) and I'll share.  

I feel like I've condensed a lot of information down into just a few paragraphs, but hopefully you get the idea.  Budgeting is an essential part of good financial health.  Clear your mind of the negative connotations the word budget brings about, and don't let another month go by that you don't have one.  And once you get rolling, don't ever go without a budget again!