How to Build a Budget

Daniel Penzing
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Budgets as a Lifestyle

What Is a Budget?

A budget is how much a person has and spends over a given period of time. The longer the period, the more complete a picture of a person’s financial position it gives.

How Does a Budget Work?

A budget is essentially an individual’s income versus spendings. The purpose of the budget is to look at both sides of the equation and focus on the overspends and the underspends. This analysis provides insight into spending behaviors that can help the individual make informed financial decisions.

How is a Budget Used?

People use budgets in a variety of ways. Some people use the budget to make their spending more efficient. For example, you might pay your rent first with your income. Then, you can use your paycheck to buy groceries, clothes, and other expenses. Some people use the budget as an incentive to save. For example, you might put a certain percentage of your income aside into a savings account.

What are the different types of Budgets?

There are multiple budgets ranging from simple to complex.The simplest budget focuses on income and daily expenses. A more in-depth budget takes into account the spending patterns of the individual. For example, there are seasonal and strategic budgets. A seasonal budget looks at irregular spending during specific times of the year. A strategic budget uses accounting software to track business expenses and assets.

Budget Step #1: Examine Your Lifestyle

Building a budget is simple, but the truth of the matter is that sticking to it is not always easy! You can make your budget planning much easier if you analyze your spending habits and adjust accordingly. Sit down and take a good hard look at your expenditures on a monthly basis to determine whether you are spending too much or too little.

To get you started on analyzing your spending habits, here are a few different aspects of your day-to-day life you should think about before putting together your budget.

Transportation

Are you carpooling with coworkers? Do you have a monthly train pass instead of paying for each trip separately? Do you take the bus, drive your car, use a rental, or do you have a fuel efficient vehicle? Transport is a dangerous expenditure, as many people overspend without considering all of their options. Make a list of your options and see if your spending is reasonable.

Sales

Almost every store in the world offers sales at one point or another. When you go shopping, how many times do you leave the store with no purchases when the store was on sale? How many times do you leave the store having purchased things you weren’t intending to buy? Saving money and living within your means means looking far and wide for sales and then taking advantage of them.

Budget Step #2: Set Financial Goals

Your budget should be designed to help you in achieving your financial goals. If you don’t know what your goals are in the first place, you will not be able to design a successful budget. So, the next step in building a budget is to decide what you want your budget to do for you.

Do you want to manage your debts?

Do you want to save for a life changing goal?

Do you want to save or invest for retirement?

Budget Step #3: How Much Do You Need to Live On?

There are plenty of expense areas you need to look at when you are looking at costs, try and identify every single one of them and then build a budget that allows you to cover the necessary expense areas across your life.

Most people forget to think about their tax, chances are you get a tax return on a yearly basis, build that into your budgets plan and give yourself a buffer of 10%.

Remember to factor in your fuel costs. Even if you have the bus/train or bike to work, you will have to factor in your fuel costs.

Now it is possible you may already have a budget in place, so is that one you are using for your purpose of the building of a budget? If not, you will need to draw up a personal budget plan, even if you are using a already used budget plan you will need to build on this newly discovered information.

3 Important Questions

The first thing you’ll need to determine when you’re creating a budget is what you want to achieve. This is where it’s important to think about what’s important to you.

“What do I want to accomplish?” and “What do I most want to spend my money on?” are two questions you might find useful when creating a budget. These are the most fundamental questions, and they’ll help ensure your budget is a useful tool for achieving your goals.

What Do I Want to Accomplish?

Simply deciding what you want to achieve with your budget will make the process infinitely more straightforward than if you open it up and start making lists of number.

Creating a budget can help you accomplish various goals, including:

  • Saving money for bigger purchases
  • Ensuring that you have enough money to cover your expenses during retirement
  • Managing debt
  • Saving money for education
  • Weighing important financial decisions
  • Managing your money better
  • Learning how to budget and save money

Decisions, Decisions

Planning Your Budget

So you’ve decided to begin building a small budget, and you want to get it right the first time. Some very basic elements you’re going to need to design your budget are going to include:

  • How much you make each month
  • How much you spend each month
  • How much you can save each month
  • How much you can spend each month
  • How much money you have in reserves
  • Category Groupings
  • Short and Long Term Goals
  • Investments
  • Retirement
  • Taxes
  • Emergencies

Budgeting Services and Apps

The best way to control and track your spending is to keep a budget. Whether you prefer to keep track of your finances on your own or take advantage of various budgeting services and apps, you can make 2017 your year of budgeting success and change.

What is a budget?

A budget is a detailed record of all income and expenses for a specific period of time, usually monthly. As part of good budgeting practice, you should allocate a specific amount of each earned and spent, as well as keep a running tab of how much you have available at any given moment. This will help you know at all times where your money is, how much you have, and what you have left for that day, week, month or year.

Creating a Budget

The only thing better than making your money work for you is making your money work for you on purpose. The easiest money management tip is creating and implementing a budget. To do this, you will need to log in to your bank account and see how much money you actually have in your account at any given point. Then, categorize each and every expense. Make sure not to skip anything, like that coffee with your friend that you paid for.

Keep Everything on Track

Whether you are a novice or an expert, you will always have a need to record your expenses and income. You can do this by hand or you can have a complete system in place.

These types of systems are perfect for small business owners who need a software program for tracking capital reserves. They can also be used for a weekly or monthly budget planner by individual users.

If you want a simple software package that will allow you to create a budget quickly and affordably, then you might want to consider using a program such as Quicken or Microsoft Money.

But What If…

In general, it’s not a wise idea to build up a debt unless you’re very sure you’ll be able to pay it back because your resources are limited. It will be very difficult for you to repay the loan since you’re also paying for the bills on your house.

There will be some instances, however, when you might have to get a loan even if your situation is a little rough.

For example, let’s say you had a major medical diagnosis and you’re waiting for the doctor to inform you about the amount you’re going to need to get surgery. In this case, you need to get a loan since you have no way to know how much you’re actually going to have to pay for the surgery.

In another example, let’s say you have a small business and you’re trying to keep your business running, but you’re experiencing a little bit of a cash flow issue. In this case, you have a few options.

You could try to borrow some money from a family member, friend or business associate.

You could try to get a personal loan from the bank.

Conclusion

Making a budget can be a very challenging experience. One of the hardest parts is the beginning when you have to make a number of big decisions, such as whether to include every expense and which expenses to include.

However, these steps are important, so as long as you take the time to make the right decisions, budgeting will be easier than you expect.

And remember, if you’ve never created a budget before, don’t be too hard on yourself. You’re just getting started, and if you follow these tips and make the right choices, you should be able to make a decent budget and stick with it.

Making a budget can be a very challenging experience. One of the hardest parts is the beginning when you have to make a number of big decisions, such as whether to include every expense and which expenses to include.

However, these steps are important, so as long as you take the time to make the right decisions, budgeting will be easier than you expect.

And remember, if you’ve never created a budget before, don’t be too hard on yourself. You’re just getting started, and if you follow these tips and make the right choices, you should be able to make a decent budget and stick with it.