Budgeting for the Budgetless

Budgeting doesn’t sound like a blast, I know… and it’s not. But it can give you some real satisfaction to watch your numbers fall in line and know that you’re financially sound and setting yourself up for peace of mind in the future. We can’t stress the importance of budgeting enough, so we took the initiative to make it easy for you. Follow these painless steps to create a budget and live regret-free.

Step 1: What’s Coming In?

The first step in determining how to allocate funds is to figure out what funds are there to be allocated. Got me? Establish monthly income from every source, including loans, odd jobs, etc.

Step 2: Where’s Your Money Going?

Online banking has made budgeting so much easier, our entire generation would probably be lost without it. A crucial and often overlooked step in creating a budget is to figure out how you’re currently spending; is eating out eating up half of your monthly income? Will electronics expenditure leave you relegated to the dollar menu at McDonald’s?

The old fashioned method for tracking your expenses entailed writing down every dollar spent under a particular category, like:

Most banks have an online expense tracking system, or spending report, linked to your checking account. Some systems allow you to create your own categories while others have already created categories for you, though you can customize them if you wish. With one easy click, you can see where all of your money has been going since you opened your account (or since your bank started offering the spending report, whichever came first). For more information on banking, see Opening Your First Bank Account.

Your spending report will also show you your total cash inflow versus total outflow; this is one quick indication of your financial wellbeing. Experts recommend that you never spend more than 90% of your total monthly income. The remaining 10% should be invested for future use.

Of course, the spending report only tracks purchases made on your debit/credit card or by check. If you tend to use cash for the majority of your purchases, consider switching over to a debit card, at least until you have a firmer handle on where your money is going.

Step 3: Set Goals

So now you have a good idea of where your finances currently stand; where would you like them to be? Would you love to put enough money aside to go to Mexico for spring break? Do you want to start investing in stocks or mutual funds? Or would you just like to make ends meet and not have to desperately hunt for quarters to do laundry?

Whatever your goals may be, make sure you’re clear about what you want both for the short term and long term. Then think about what it will take to make that happen.

For instance:

• Goal: Spring break in Puerto Vallarta
  Total Expenses (airfare, hotel, food, entertainment): $850
  Months Before Spring Break: 10
  Savings Needed per Month: $85
• Goal: Cut restaurant spending by 30%
  Current Spending (April): $360/mo
  Spending Goal (May): $252
  Average Daily Restaurant Allowance: $8
• Goal: Purchase a $500 five year CD annually
  Monthly Savings: $42

The next step is to incorporate these goals into your budget so you can make your dreams a reality.

Step 4: How to Create a Budget

Now it's time to take all these numbers and make them work for you. Using your current income and spending numbers, determine where you could cut back if necessary. Then, incorporating your goals, come up with a plan. This budget is your ideal expense report.

Step 5: Revisit & Revise Your Budget

A budget is not static. Circumstances change and miscalculations are made. You have to keep track month to month to make sure your budget is realistic for your needs and that you're sticking to it. If you completely blow your budget the first month out, don't let it discourage you. Determine where the biggest problem areas are and create a plan for improvement. Revisit every few months to refine or revise your allocated funds for each category.

Above all, if at first you don't succeed, try, try again. Learning how to effectively manage your money might be the single most important thing you ever do.