Budgeting Tips

Budgeting Tips

Budgeting Tips

The budgeting process can operate like a coin sorting machine. We dump in our income for the month and the sorter (budget) separates it into the various categories of saving, investing, giving or spending. Just as the coin sorter accounts for all of the change, the budget process accounts for the use of all of the income arriving that month. Nothing is wasted, lost or frivolously spent.

But how do you get started? What tools do you use to get it done each month? Are there some basic budgeting tips to remember?

Budgeting tools come in all shapes and sizes. It can be as simple as a legal pad or an Excel spreadsheet. For those more tech savvy, low-cost online tools also exist to help in the budget process. Regardless of which method you use, the basic process is the same.

Review Expenditures

For those who have never budgeted before, I always suggest they look forward by first looking back. As well as can be determined, look back to the previous month or two’s expenditures and see where your money went. Unless your bank balance grew, something happened to the money. Was it spent on expenses? If so, on what expenses was it spent and how much on each type? Was it sent to a savings or investment account? Was a portion of it donated?

There may be amounts you can’t account for. A check was cashed or an ATM withdrawal was made and you don’t remember what you did with the money. Account for what you can.

Estimate Incoming Expenses

With this information in hand, turn your attention to the upcoming month. In most instances, families have a reasonable idea of the income they are expecting the next month. Yes, there are instances of seasonal work or perhaps unpredictable commissions that make determining the amount of income difficult. But even in these situations, a reasonable estimate of the next month’s expected income should be possible to determine.

Determine How Your Money Will Be Spent

Your next step will be to act like that coin sorter: allocate that estimated income into all the ways you plan to spend, save, invest and give away those dollars. Every dollar should be accounted for. If you leave it unassigned it will surely be spent, or more likely wasted, on some unknown purchase. Lost money slows down or prevents you entirely from creating financial freedom and control.

When my family started creating a spending plan each month, we were shocked at how much we were spending in some categories with nothing to show for it. The budget allowed us to tell our money where to go instead of wondering where it went. Don’t underestimate the value of going through the process.

Basic Budgeting Tips to Remember

  • Only budget one month at a time and don’t plan on doing it once and copying it over and over. Yes, many of the items will be the same month-to-month. But variables always arrive, whether it’s a bonus at work, or an expense that only occurs quarterly or annually. Focus on just the next month.
  • For those who are married, your budget should be a collaborative process between a husband and wife, not a document prepared by one and forced on the other. It’s fine for one to prepare the first draft of the budget, but both parties should have their voices heard and their priorities included in the spending plan.
  • For those who are single, find an accountability partner. It is tough, especially in the first few months when it seems like a lot of work with limited benefit, to stick with creating a spending plan every month. Having someone to hold you accountable to do so will help tremendously. If possible, find someone going through the process on their own, too, so you can hold each other accountable.
  • Anticipate the budget process to not go well for several months. You didn’t climb on a bike and ride perfectly the first time. In fact, you may have skinned your knee a few times before become proficient. Budgeting is a skill, too, and it takes time to learn. It also takes time for sporadic expenditures that are easily forgotten to reoccur and remind you of their existence.
  • Once the budget is prepared, it should be treated as if it was prepared in pencil, not etched in stone. During the month, things will arise that weren’t in the budget. When that happens, get back together with your spouse (if married) to adjust the budget as necessary. You’re not in Congress, so if you need to spend more in one area, you’ll need to reduce another planned expenditure. Working on this together will not only solve the financial issue, but could also strengthen your marriage in the process.
  • The monthly planning process should continue, no matter what level of financial success you achieve. You never “graduate” from planning. But the process will get easier and less time consuming as you gain experience.

There’s not a budget that exists that will work for everyone. You must budget accordingly to your own personal financial situation. Once you determine what works for you, stick to regularly maintaining your budget. A budget can work for people in various financial situations, it just takes time and effort to make sure it is being used properly

source: investing

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