How to Create A Budget
If you’re trying to use your money wisely, one of the best weapons you can have in your arsenal is a budget. Now, I know that budget is a bad word for a lot of people. To many it implies restriction and deprivation. In reality, nothing could be further from the truth. A budget is a way to give yourself freedom, both from debt and from worrying about money. If you make a budget and stick to it, you’ll be able to pay your bills, have a few small luxuries and put some money away for a rainy day. What could be better?
If you’re new to making a budget, the first thing you need to do is make a list of your expenses. It is entirely possible, especially if you’ve been in the habit of making lots of little impulse purchases that you don’t know exactly where your money is going. If that’s the case, start by keeping track of all your expenses in a notebook or on a spreadsheet for a month or two. At this point the idea isn’t to set limits on spending; it is simply to figure out how your money is spent.
Once you have your data and can see what your expenses are and where your money is being spent, you can create your budget. Start with a list of your expenses. Using the record you’ve been keeping, make a list of fixed expenses, house payment, car payment, insurance etc., and a list of discretionary expenses. Discretionary expenses are things that are nice to have, but which could be cut back if necessary.
The other half of your budget equation is your income. Your income is simply the money you have coming in and available to spend. Salary from a job would count as income. Child support would count as income. Retirement or pension payments would count as income. Any money that you can use to pay your bills is income and should be counted in your budget plan.
Another thing to consider before you start creating your budget is your goals. Do you want to save for a down payment on a new house? Are you working to reduce your debt? Is your main goal saving for retirement? Your goal or goals will help you determine how your money should best be budgeted. They will also help you determine what amount of discretionary expenses you’re comfortable allowing. If your savings goals are longer term, you may be willing to save a little less and let your nest egg build slowly. If your savings goals are short term, you may be willing to sacrifice a little more in the short term in order to meet your goal.
Once you’ve determined your expenses, your goals and your income, you’re ready to create your budget. You need to have some sort of format for your budget. It can be as simple as a chart you create in a notebook, or you may choose to use a money management software program. Whatever method you choose to use, the end goal is to allot certain portions of your income to cover your expenses. Start with the fixed expenses and then move on to the discretionary expenses. If tracking your expenses has helped you to see where you’re overspending, you may need to cut back on your discretionary expenses a bit.
Once you’ve developed your budget, try it for a month or two. Remember that a budget is just a guide, and that it can be tweaked to suit your needs and lifestyle. The goal is to put together a budget that you can live with, so don’t be afraid to build in a few small treats and luxuries.
October 9th, 2008 at 9:37 pm
Thanks for writing about how to save money, I love your blog and read it all the time!
October 24th, 2008 at 2:18 pm
[...] depending on what you are trying to accomplish. A Frugal Housewife gives us insight into this in “How to Create a Budget” Another thing to consider before you start creating your budget is your goals. Do you want to save [...]