Budgeting 101 – Take Control of Your Money

Getting Started with Budgeting

Budgeting is a lot like dieting – almost everyone has tried to do it before, but most people fail to stick with their plans in the long term. Why is this, and do these trends mean that you’ll never be able to stick to a budget yourself?

Why Budgets Fail

The truth is that most budgets fail for the same reason that most diets fail – they’re too restrictive. Telling yourself that you won’t spend a dime on coffee ever again (despite a twice-a-day Starbucks habit) is a lot like saying you’ll never eat another piece of cheesecake. Eventually, you begin to feel deprived and lose the resolve to stick with your budget.

In order to succeed with budgeting, you need to take a more balanced approach. A good budget is one that allows you to stay within your means while still allowing for the occasional splurge purchase – just like a lifetime of healthy eating will help you maintain an appropriate weight without dieting. In the following steps, we’ll look at how to set up a budget that works for you.

Step 1 – Information Gathering

It’s tough to plan a budget when you aren’t familiar with how much money is going in and out of your wallet. For this reason, most financial planners recommend that you take at least a week to write down everything you spend before attempting to create a budget. The easiest way to do this is to carry a small notebook around with you so that you can write down every purchase, from groceries and utilities to smaller sundry items, like soda or gum.

The longer you carry out this information gathering task, the more information you’ll have to use in this step of the budgeting process. If you can, try to go a whole 30 days so that you can see how your family’s spending fluctuates over a month.

Step 2 – Analyzing Your Information

With your notebook in hand, it’s time to analyze where your money goes each month. To begin, assign each expense you wrote down in your notebook to a specific category, such as “Mortgage/Rent,” “Clothing,” or “Medical Expenses.” If you’re having trouble coming up with a list of categories, do an internet search for a budget worksheet – you may even be able to find a free version you can download to your computer to organize your expenses more easily. Once every expense is assigned to a category, total the categories and determine what percentage of your total expenses come from each category.

Step 3 – Making the Tough Decisions

When you’re finished analyzing your financial information, you’ll notice one of two possible patterns – either you’re spending less than you make or you’re overspending, based on your current income.

Obviously, the more serious of the two scenarios is that you’re spending more than you’re bringing in as income. If this is the case, you need to either cut your spending or increase your earnings – relying on debt to cover your excesses isn’t a strategy that will work in these tough financial times. However, cutting your expenses may not be as difficult as you think. Reducing the number of times you eat out each month, spending less on new clothing or beauty services and reevaluating your cell phone and cable plans to be sure you aren’t paying for more minutes or channels than you use are three easy ways to trim the fat from your new budget.

Finally, don’t forget to leave a little wiggle room in your budget to accommodate the occasional fun purchase. If possible, put a few dollars from each paycheck into a separate account to be used for expenses that fall outside of your budget. And give yourself a break – you may stumble occasionally, but with continued diligence, you will eventually meet your financial goals.

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