Budget Basics

Money is spent much more quickly than it is earned.  This is especially true of those trying to navigate their personal finances without the use of a budget.  Learning to create and effectively use a budget will help control spending.  It is surprising to discover how much more one can actually have by simply knowing where it is spent.

Budgets help control spending.  This does not mean that having a budget will prohibit the purchase of wants and desires.  It simply means that these wants and desires will be purchased when finances allow.  When creating a budget be realistic.  The primary reason that budgets fail is that they fail to accurately plan for money that will be expended.

Someone that loves shoes would be wise to money in their budget for the purchase of shoes.  Similarly, it is foolish to forget to budget for incidentals like a pack of gum or a soda and for unexpected events such as office birthday or broken pipe.  Set money aside for bills and known expenses, savings, unplanned emergencies and purchases, and wants and desires.  Budgets are not meant to create financial constraints, rather their primary purpose is to liberate the consumer from impulse spending and money wasting.

When starting with a budget it can be tempting to over complicate the budget.  This is common and also commonly leads to failure.  Set broad categories of spending such as utilities, mortgage, food, and clothes to simply keeping track of expenses.  Budgets that are complex are not only difficult to create they are difficult maintain as well.  This will quickly lead the inexperienced budgeter to frustration and eventual abandonment.  A simple budget with a few broad categories will be simple to create and possible to maintain.  As experience with budgeting grows, the budget can be modified to include more specific categories.

Learn to write every purchase down.  At first, this can be absolutely irritating.  However, with a little practice it becomes almost an unconscious behavior.  By writing every purchase down, it will be possible to make sure that the budget is being followed.  It also allows for the tracking of errors in purchase amounts.  It is surprising to realize that stores and banks often make errors just like you and I.  Paying attention will ensure that errors are quickly corrected.  If writing purchases down is not a task that one is willing to complete, they may consider storing purchase receipts in an envelope for later review and reference.

The hardest part of budgeting is sticking to the budget once established.  It can be difficult to track and remember when the monthly food money has been spent.  If this occurs regularly, a possible solution is breaking the monthly budget into weekly segments.  This will ensure that there is money every week for food and will limit overspending.  Using cash for purchases can be a tool to help remain on budget.  Consider withdrawing the weekly food money, or other budget area, from a bank account.  Store this money in a safe place and commit to use this money, and only this money, for food purchases.  One may want to consider only taking the cash with them to store, and leaving cards at home, until they become more comfortable with sticking to a budget.  If areas in the budget consistently run over budget, it would be wise to adjust the monthly budget to allow for increased spending in these areas.

The final requirement for keeping a budget is to evaluate the budget often.  Once a month spend an hour looking over the budget.  Which categories had money remaining and which categories were over?  Was money spent in categories not present on the budget?  Evaluate progress, set new goals and congratulate yourself for working toward budget success.