The Basics of Budgeting

Sun, May 2, 2010

Budgeting

Everybody you talk to these days seems to have their own idea about what budgeting means. Usually, it is an abstract idea related to saving and making a general effort to use money wisely. These are good principles, but they are not specific enough to really get the benefits of having a solid budget. Those benefits are achieving a financial goal, a sense of accomplishment, and most importantly, more money in your pocket.

Set Goals
To start out with, identify a specific goal. It can be buying a house, saving a certain amount for a child’s education, or paying off a certain debt. Make sure there is a specific figure attached to it so you have something concrete to strive for.

Plan Specifically
Once you know the aim, work with the income you regularly pull in to devise a plan of how to best allocate it. Assign percentages to different categories of spending and saving, and be sure to be tough but realistic.

Track Everything You Spend
After you have a plan, get ready to track everything. That means everything, down to the smallest snack purchases. This can be done in a spreadsheet, on a smartphone, or with pen and paper. It is a matter of what works best for you. Sometimes just getting a close look at how you spend your money is enough to improve your habits without any further action.

Build In Flexibility
Being realistic is the main thing with budgeting. If you see there are certain places where there is not much room for change, make an adjustment to your plan and allocate that part of your income for what you need. If you can be honest about this, and still make cuts where you need to, you could soon be making a lot of progress towards the goal you set.

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2 Responses to “The Basics of Budgeting”

  1. Patrick Says:

    This is the hardest part, tracking everything you get to spend. I couldn’t imagine myself taking down notes of everything I’ve purchased or spent with. Talk about the word stress. Thanks for sharing this btw. Definitely a good read for start of the week.

    Reply

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