Budgets can be simple/complex, rewarding/frustrating, beneficial/useless, but the main thing they do (if done correctly) is build wealth. I know I’m in the minority when I say that I enjoy budgeting. I love tracking how much money we make vs. how much we spend and knowing exactly where that money is going. The majority of people cringe when they hear the word “budget” or “budgeting” thinking that it is too hard and takes too much time. Hopefully after reading this article you will understand how to create and maintain a very simple budget. This simple budget will most likely morph into something more complex as time goes depending on what your personal finance goals may be.
The idea of a budget is to have a written plan of how you will spend the money that you make (yes, it’s this simple!). Today’s culture encourages debt and leveraging yourself to a point that restricts how you can spend your money, but this is not sustainable long-term. The main goal of your budget should be to spend less than you make. I know that seems like common sense, but you’d be surprised how many Americans don’t make this a priority.
Here is a very simplified budget template (I’ve also attached an excel version of this budget template that will help you get started here http://www.commoncentswealth.com/wp-content/uploads/2013/01/2.-Sample-Monthly-Budget.xls):
As you can see, this is not very complex and would not take very long to fill out. If you haven’t already, I encourage all of you to fill out your own personal budget. The sample budget I have provided includes your income, monthly variable (i.e. gas, groceries, miscellaneous, etc.) and fixed (i.e. mortgage/rent, loan payments, etc.) expenses. I will go into further detail on how much you should spend in each category at a later date (let’s keep it simple for now). Now that you have a rough idea of how much you make and where that money will be going, we need to have some way to track your expenses. I know that anyone can create a budget, but following it is much more difficult.
It is essential after you’ve created your budgeted amount for each category to begin tracking every single expense. Below is a bit more advanced spreadsheet (just adds the tracking columns) along with a very simple expense worksheet. Note: I do not include tracking of fixed expenses in the example because they should always be exactly what you budgeted (hence the term, fixed).
This is how I would start if I didn’t have too much experience with budgets or Microsoft Excel. It is pretty simple, but includes everything you need to track how you are doing vs. your budgeted amounts in each category. As you get more experienced (or have more money than this example) you’ll be able to budget in retirement savings, a vacation budget, or college savings accounts for your children.
What I like so much about budgets is I know how much money I’ll have left at the end of the month and I don’t feel bad at all about spending money as long as it’s in the budget. I know that I can take my wife out for a $50 dinner date as long as we’re at $50 or less so far spent this month in the “eating out” category. Or I can go buy a $500 Ipad (for the Miscellaneous category) as long as it’s the only thing that month in this category. The key to any budget is to track EVERY expense and stick to what you have budgeted in each category. If you follow these simple steps, you’ll be well on your way to getting your finances in order and building wealth!
If you don’t have a budget, why don’t you? What are the main reasons you don’t have one yet? If you have a budget, what are your favorite and least favorite parts of having one?