There is no denying it, having a budget is important. My budget keeps me focused on my goals and tracks where I spend my money. Remember how surprised I was to find out I spent over $1,500 in gifts in 2008, the only other category I spent more money in was dining out.
It is not surprising then that almost all personal finance bloggers have some sort of budget. What might be surprising is that no two are exactly alike. How do I know this? Have I looked at every single person’s budget? No, but budgets are as personal as your sense of style; no two people have exactly the same wardrobe, do they? Okay so maybe there are a handful of people who do have the same wardrobe, and perhaps there are a handful of people who have the same budget (and I’m not talking about those of you who share a budget with someone else). Still, similar to your financial balance, no one size fits all with budgets.
Budgets are also living documents. They change as your situation changes and as you struggle to figure out what works best for you. I started budgeting when I was studying abroad. I wasn’t working and I only had a certain amount of money to get me through the semester. My budget was basic and not complete. I was only allowed to spend a small amount from Monday-Thursday so that from Friday-Sunday I could enjoy the country I was in or travel. It was simple and worked.
I didn’t start seriously budgeting again until I went to graduate school. I had an awesome frugal roommate who taught me how to manage my money (sometimes without even realizing she was teaching me). In graduate school I still used the pen and paper method to budget, and it wasn’t until I was in my current job that I actually started budgeting in excel.
I am proud to say that I’ve taken the budgeting skills I’ve learned and passed them on. These are the steps I ask my friends to follow when they are ready to start budgeting.
- Track your spending for a month.
It is important that you don't cut back this month. So do exactly what you would if you weren't tracking your spending or thinking about saving so you have an accurate picture of how much you spend. - Figure out what is really important to you.
Prioritize. Decide what it is that you can't give up. Perhaps it is important you buy lunch everyday so you can socialized with coworkers, or maybe you can't live without your cup of coffee from that one coffee place. - Decide how much you want to save each month.
Take a guesstimate and choose an ideal number. Once you have finished tracking your spending you may find that you can save more, or maybe it's less. The important thing is that you start thinking about saving right away. - Make a list of your fixed expense.
Include your rent, mortgage, student loans, other debt payment, internet, cable, utilities, newspaper subscriptions, etc. - Develop your goals.
Do you want to pay off your credit card? Save for retirement? Travel across the country? Figure out your goals and write them down.
- Budget for your fixed expenses first.
Make sure you have enough money for them and schedule payments to match your pay days. - Add your savings into the fixed expense portion of your budget.
Think of savings as a bill. It is something that should be paid at the beginning of every month. The key to being successful is to leave your money in your savings account. This money shouldn't be used to buy a new pair of boots that you had to have. You are saving for a reason (remember your goals) so the next time you want to take money out of your savings account, remember that reason. - Break up your non-fixed expenses into categories.
The way you decide to do this is completely up to you. You may want to identify a certain amount to be spend on groceries, household items, etc. Or you may want to have a lump sum you can't go over but you can spend on anything. - Be prepared to tweak your budget.
Your budget is a living document. You may end up tweaking it every month, or you may love it just the way it is from the start. Either way it is yours to do with as you like. Just use it!
