Creating a household or personal budget does not have to be difficult. In fact, it can be quite easy. The secret is to avoid the common mistake of making the process complicated. The best budgets are the ones that are easy to understand, easy to follow, and easy to maintain. It is your money. Put yourself in control and have a little fun with your assets.
- Where to Start
Taking that first step is always the hardest when it comes to budgeting. Let’s make it a little easier
First open up a spreadsheet program (or take out a piece of paper) and make three columns: Food, Housing, and Transportation. The bulk of most people’s budgets fall into one of these three categories. In fact, most of us spend half to three-quarters of out take-home pay in these areas. Chances are that you already have a good handle on how much money you are spending in these areas. If not, then it is time to gather the monthly bills and recent receipts.
2. Getting Organized with the Top Three
If you don’t do this already, take the time to organize your bills and main expenses in the areas of Food, Housing and Transportation. This could be as simple as having a basket or large envelope of receipts and paid bills, or as detailed as a well-organized filing system.
Food expenses should include groceries, eating out, convenience store items, etc. If you have a regular coffee run or daily trip to the vending machine, include that as well. Housing expenses include rent or mortgage, home insurance, association fees and utilities. Don’t worry about maintenance or upgrade expenses just yet. Transportation expenses include car payments, insurance costs, gas or fuel costs, tolls, public transportation costs, parking, and anything related to getting you from one place to another on a regular basis. Make sure everything is listed out in a monthly format. If a bill gets paid less frequently, divide the cost out over the number of months the expense covers. For example, if your insurance bill is $634 every six months, you should budget $107.17 once a month to cover the cost.
3. What to Do with the Rest
Take your take-home pay and subtract all of the expenses you have just listed. Whatever is left is the money that you have left to allocate in all other areas. Remember that we don’t want to make this budget too complicated or detailed just yet. Use broad categories and assign money amounts to each. Some examples include Debt Payment, Clothing, Entertainment, Savings, Household Expenses (non-food items), Medical Expenses and Professional Expenses.
Some credit card companies keep track of various expenses for you, and there are a number of online resources that will help you figure out where your money is going right now. These include Mint.com, Pennyminder, and You Need a Budget. Make use of them, if you think they will help.
Once you are comfortable keeping a budget, you can break down your main expenses into smaller categories. For example, listed below savings in your budget, you may have subcategories that include College, Retirement, New Car, or Unexpected Expenses.
It is more important to start a budget and commit to tracking your expenses it than it is to worry if the budget is perfect in every way. Make note that anything that doesn’t work for you can be changed. Nothing is set in stone, and it is actually smart to review your budget once a month to see what works and what doesn’t. Consider both the good and the bad decisions you might have made with your money and keep moving forward. The hard part, taking that first step, is already behind you.