Budgeting

If the recent collapse of our economy has forced you to take a closer look at your financial situation, you have probably realized that you need to create a budget. Budgeting your money is a concept that many people perceive as difficult, time consuming and even stingy. Although, creating a simple budget so you can live within your means is most likely the wisest financial decision you can make. And it is pretty easy. The key to making your budget successful is keeping it honest and simple. Yes, you can buy some budget software, but these are often way more complicated than the ordinary person needs and they usually have a lot of categories that you won't use. Here are a few guidelines so you can make your own personalized budget.

First thing to do is open up a spreadsheet. On top of Column B, put the month you are budgeting for. In Column A (starting in Row 2), list each person with income in your household. Write down the expected income for each person in Column B. There are a couple ways to list your income. If you want to pay attention to withholdings for taxes, retirement and insurance and how they fit into your budget, put your total income down and you can include all of that info in your expenses. Or if you think that you're doing fine in that aspect and that would make your budget way too complex, just put down your take-home pay. Also, if your paycheck fluctuates from month to month, put down the least amount of money you would expect to make under normal circumstances. I also add a line for any Bonus money that comes in. In the cell at the bottom of the list of incomes, sum up the total income for the household.

Now you know how everyone has always said to pay yourself first? We are going to put that into your budget. Skip the line underneath your total income and put Savings in Column A and the amount you would to save in Column B. Make this as detailed as you like. A couple things you may want to list are Retirement, College Savings, Investments and some extra fun things to save for like a new car or furniture. Just be sure to keep the amount you are saving realistic. You may want to save $5000 a month, but if you make $4500 that is just not possible.

Now, reality has to come into play. Underneath your savings, list all of your monthly expenses. Begin with regular bills that you can't alter the amount very easily, like mortgage, rent, and utilities. Next, list all of your other expenses. My list has gas, groceries, phone, cable, car insurance, medical, dog care, dining out, hobbies and incidentals. Again, make this as detailed as you like. I usually break down the expenses I put on my credit card into each of these categories because I pay for whatever I can with my credit card. But if you want to limit your expenses put on your credit card, feel free. Just be sure not to count any expense twice. Insert the amount you plan to spend in each category in Column B. Make sure you are as exact and as honest as you can be for your budget. Take a look at your last credit card and bank statements to figure out what you normally spend. Now, sum up all of your expenses (starting with savings) at the bottom of your list.

Now we're at the really fun part of the budget process. Your total expenses need to equal your total income. On a new line, write Leftovers in Column A and in Column B subtract your total expenses from your total income. This number needs to be 0. If you have a positive number, that's GREAT! Add that amount to your savings line and you are done. But, if the number is in the negatives, you need to trim your budget a little. Begin with the frivolous categories that you don't really need to spend a lot of money on. Once your magic number equals 0, congratulations! You have created your very own personalized budget! I feel bad to have to mention this, but that was the easy part. The really hard part making sure your spending stays within your budget. But I'll write more on that later. For now, give yourself a pat on the back for making your own simple budget!