It’s complicated

Many times people fail to create a budget simply because they don’t understand the importance of having one and because they feel it’s overly complicated.  Creating a budget doesn’t have to be complicated though.  In fact, it can be very simple.  

You need to know what a budget does first.  And a budget has 2 functions:

  1. it helps you track your monthly expenses
  2. it helps you figure out what you value

By creating a budget and following it you are in control of your money.  You tell your money where to go.  You are in the driver’s seat.  The key to a budget is to keep it as simple as possible.

Here are some simple steps to take when creating a budget:

  1. Figure out your after tax income – this includes child support, investment income, etc. (This is basically your take home pay and any additional income sources you have available to you)
  2. What do you want out of your budget?  Set some goals:
    • Are you trying to get out of debt?
    • Are you saving for a vacation?
    • Is there an area you need to work on, like building up your savings account or money for a downpayment for a house?
    • Are you able to keep up with your monthly expenses right now?
  3. You need to write down all of your necessary expenses. These include things like: your emergency fund (I will discuss savings and emergency funds in a later post), food (groceries – not fast food or restaurants), shelter (mortgage/rent), transportation (gas, parking/tolls, oil changes), utilities (heat, electricity, water), medical (copays, prescriptions, premiums)
  4. Write down all of your debts (auto payment, credit cards, student loans)
  5. Write out your monthly income and deduct your needs first, then your debts.  What is left over is money that you can use towards things like coffee, eating out, clothing, etc.
  6. Make sure you have nothing left when you’re finished – all money should be assigned to a category.  This is a zero based budget.

Budgeting can be as simple or as hard as you want to make it.  If you sign up for my monthly newsletter you will receive a simple budget worksheet PDF.  It takes the hard part out of the budgeting process for you.  I hope you’ll use it and start budgeting this week.