How to Start a Budget

Everyone is looking at ways to successfully navigate the troubled economy these days. The first steps for anyone is to have a working budget.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• spreadsheet (preferably on a computer)
• calculator
• envelopes (optional)

1. Discover where your money is going. Start tracking what you spend. To make this easier, get receipts for everything. At the end of a week, sort them into categories. Be sure to include everything from cash and credit card expenses to online banking and automatic withdrawals. You can keep receipts in an envelope or record them as you go on a spreadsheet. Remember expenses you may have that are quarterly or yearly.
2. After at least a month of tracking your expenses determine what catagories you have. Some categories may be: charity, home, auto, food, household, debt, clothes, pets, entertainment. Don't forget savings.
3. Add all sources of income to determine your monthly income. Do your expenses exceed your income? Prepare to change your spending habits!
4. Add subcategories. For example, House may have mortgage, insurance, utilities, etc.
5. Prioritize your categories and sub-categories with essential expenses (mortgage, utilities, insurance) at the top, important expenses (food, car fuel, household) next and flexible expenses (entertainment) at the bottom. If you have debt, this should be at the top of your list (with the exception of charitable giving).
6. Fill in expenses that have set amounts first. Mortgage and car payments are expenses that you pay the same each month. Include all debt in your first priorities. Fill in other necessary expenses next. See what you have left. The second hardest part of budgeting is making your expenses fit into your income, so play around with the numbers until your equal. Don't forget savings! And make sure you have an aggressive plan to get rid of debt.
7. If you can't get the money to stretch far enough it's time to take a hard look at what you can get rid of. Maybe you need to sell one of your cars. Maybe you need to sell your house and get a less expensive one. Maybe you need to cancel some memberships or subscriptions until you get your finances under control.
8. Now for the hardest step, live by the budget. If it's not in your budget, don't spend it. If it's unavoidable (like an unexpected car repair or medical expense) then you must take money out of another category in your budget that month. If you screw up, pick yourself up, dust yourself off, and start all over again! Don't give up. You can do it.

Tips & Warnings

• Build an emergency savings account with at least 6-8 months of income.
• Get credit cards and other debt paid off, then live within your means.
• Picture the freedom that your family will have when you have a financial plan and think about that whenever you're tempted to spend for something that's not in your budget.
• Live on the 10-10-80 Plan. Give 10%, Save 10%, Live on 80%.
• Check your progress through the month as often as needed to ensure that you know how much money is left to spend.
• Use a computer spreadsheet and set up a total of the columns you're filling in so you can see immediately whether you've gone over your target amount.
• Always pay off credit cards each month. Don't put anything on a credit card that isn't already in your budget. If you can't do that, then cut up the credit card.
• Don't neglect giving. When we give to others in need, whether it's through your church giving or to other charitable organizations, giving helps us see the bigger picture. It's about more than just "me." There's always someone who is less fortunate than you are.