Four Simple Steps to Creating a Budget

You know you should have a budget. All the experts say so. But it’s just so darned complicated and boring. Well here are four simple steps to creating and using a budget that will have you on your way in no time!

1. Set a goal so you’ll know your reason for doing a budget. Debt reduction? Savings for retirement? A cash only Christmas? You’ll be much more likely to see your plan through if you know why you’re doing it.

2. Determine what you’ve been spending. This is a time-consuming step but it’s not one to skip. Before you can decide what you should be spending you have to find out what you have been spending.

Sit down with your credit card statements and check registers. Do you have your info on the computer? Even better. Don’t get too detailed at first or it will be overwhelming. Decide on, say, ten basic categories like housing, food, clothing, insurance, auto, entertainment etc. Then group your expenditures into those categories.

3. Decide what you want to spend. Step one was eye-opening, wasn’t it? Now it’s time to decide which categories are under control and which ones you want to reign in. Part of this will be determined by your goals. Maybe that entertainment category seems perfectly reasonable. But if you could eek out another $100/month you could apply it to your debt. No doubt the amount you’re spending on groceries surprised you. Find some ways to cut back and you can put that money into a savings account for a vacation.

Maybe no single category seems out of whack but you’re just spending too much money! That’s when you’ll want to use a technique I call the 10% solution. Make it your goal to cut back each category by 10%. That won’t be too painful and it should add up to quite a bit of money.

4. Track your progress. The work you did in steps one and two won’t amount to much if you don’t put your plan into action. As the month progresses, keep track of how you’re doing in each of your categories. Then make adjustments as you go along.