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“Budgeting? What do I need to budget for?”

These words have come out of nearly everyone’s mouth at one point or another. Some choose the wise route of budgeting and some choose the lazy route of not budgeting. If you don’t have a monthly budget yet then this post is for you.

Why Budget?
Budgeting is simply the act of controlling your money and in-depth classes are offered on the subject through online finance degree programs. A budget allows you to control your money by helping you realize what your cash flow situation is. By cash flow I mean where the money comes in and where it goes out.


For most people, their budget will look like one large river flowing in and many streams flowing out. Some bigger than others. Although your income should be a focus, people seem to struggle most with controlling their expenses. Most of us have more streams flowing out then we realize. This is where budgeting comes in.

The Real Financial Crisis
It really hurts to not have enough money to pay for your bills at the end of the month, doesn’t it? Increasing your income could help. In fact, it does seem to help for most people. The effect is short lived however because people have a funny way of increasing their expenses to meet their income no matter what it is.

Today, we live in a credit culture. Many of us have gotten used to paying with credit when we don’t have the cash to back it up. In fact, those of us in the US have had a negative savings rate since 2005. People continue to spend more than they make on a regular basis.

What gives?

Our real financial crisis is that we buy now and pay later. We spend now and save later. We enjoy right now, and leave knuckling down for later. The problem with all those “laters” is that they seem to all come together at once and at the worst possible time. Instead we can choose to do them now and enjoy the benefits of doing so.

How to Budget Part One

  1. Get a piece of paper and pencil. (Pencil is important so you can erase)
  2. Make two columns
  3. At the top of one column write income and on the other write expense.
  4. In the income section write your monthly take home pay (pay after taxes, benefits, investments, etc.)
  5. In the expense section write all of your installment debt. (Installment debt is something you pay monthly. Examples would be your mortgage, rent, car payments, insurance, cell phone, and anything that does NOT change month to month.) In other words, your fixed expenses.

How to Budget Part 2

  1. Now that you have completed the above here is where the real work of budgeting begins. The next step is to find out what you have left over. This can be considered your flexible spending account.
  2. Hopefully you have at least 30-40% of your income left over at this point. If not, you may want to consider finding a way of lowering your fixed expenses.
  3. If your finances seem under control up to this point you may want to consider adding another “fixed expense” called savings. If you can, you should put as much of your income into savings as possible. A good rule of thumb is 10%. A savings account is a great buffer for any unexpected expenses the have a tendency to occur when they’ll hurt the most. In life the unexpected happens. If you want to come out in good shape be prepared. Bear in mind that this is in addition to any pre-tax investments you may have. I won’t go into investing here, but I do think it is best to invest with pre-tax dollars if you can so they are included in part one of building a budget.
  4. Now you can start looking at your variable or non-fixed expenses. These include food, gas, utilities, entertainment, and anything else that DOES change month to month.
  5. For each of these you will want to allocate a certain amount each month that seems reasonable for them based on previous months. Don’t worry too much about getting these perfect. The important thing is that your income and expenses (including savings) zero out at the bottom. Meaning your cash inflow (income) is equal to your cash outflow (expenses plus savings).

Congratulations! You just made a budget in the form of a balance sheet. Basically all that means is that you figured out how to balance your income with your expenses and savings.

Now the hard part begins! And you thought taking the time to make a budget was the hardest part!? Well the hardest part is sticking to it and properly adjusting your budget as circumstances change. I’ll cover this part about budgeting right after we all make our New Year’s Resolutions. Until next time.

Jeremy Day writes about personal development, finance, and health @ Insight Writer. Check out his website and subscribe to his RSS feed. You won’t be disappointed!

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