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Learning how to make a budget it an important skill. That is why This blog talks a lot about budgeting.
A popular myth is that you can get financially fit even if you don’t make a budget. They say don’t work hard. Don’t track your spending. But, you must.
If I had to identify one financial tool or resource that made the biggest financial difference in my life I would say it is the budget.
But, you cannot change your financial habits until you are willing to experience a little challenge to your financial world. Before you start to track your spending, make sure you know what has kept your from budgeting.
Two Budgeting Phrases To Avoid:
“I don’t know enough.”
Budgeting is a process. Over a lifetime tracking your spending will probably save you tens of thousands of dollars.
Like anything new budgeting has a learning, an energy, and a time curve attached.
Initially, the process will be difficult. It will take more time than your current (lack of) spending plan. You will need to learn something new in the process. You will need to motivate yourself to keep track of your spending.
“I don’t make enough money.”
If your gross annual income is $1.00, you make enough.
A budget is simply a prioritized spending plan. It helps you answer the question – what is the best way to spend this dollar? Since most financial plans include multiple dollars, you just ask that question many, many times.
How To Set Up And Make A First Budget
Budgeting is a process, not an event.
There is no such thing as a budget failure. There are simply ample opportunities to learn how to do it better. There is no such thing as a perfect way to track your finances.
If you try to address every single financial detail, it will bury you. Make it your goal to set a simple start and build from there.
Determine What Budgeting Tool You Will Use
If you have tried tracking your spending before but it didn’t work out, you should try and identify what didn’t work about the first budget. Often times people fail because they create systems that are too complicated. Should you try a pen and paper system?
Perhaps you would like to try this simple free budget template.
For a first time budget I do not recommend a full service program like Quicken. Quicken has so many features that you will quickly become overwhelmed by its potential. You are also likely to get distracted by other parts of your financial plan. However, Moneydance is a little less overwhelming and may help when setting up a budget.
Schedule an Initial Session to Create Your Budget
Don’t try and deceive yourself – you might need an entire afternoon to make a first budget. Chose a free Saturday morning or afternoon. Choose a date just over a month away.
Think about the laws of motion. If a big rock is sitting in front of you, it will take a lot of energy to get the rock moving. Once it is rolling, you take advantage of the momentum.
Since you’ve not successfully budgeted before you will need a big chunk of time to get the ball rolling.
Choice A: Set Your First Budget by Keeping Every Receipt for a Month
Choice B: Set Your First Budget by Following a Recommended Budget Percentage Guide
At this point you will need to start. You can do that by choosing one of the above options.
If you keep every receipt for a month:
During this month you will slowly be gathering all relevant financial documents – bank statements, credit card statements, pay check stubs, bills, and anything else financially related. If they are already in one filing cabinet then that’s fine.
During this month you will be collecting every receipt or recording every payment. You might need to go to the dollar store and buy a small notebook. If you spend money, get a receipt or write it down – for an entire month. These expenses will give you a place to start to set budget categories.
For every bill you pay once a year, simply take the total payment and divide it by 12.
This is an important first step for getting out of debt.
If you follow a recommended budget percentage guide:
All you would need to do is to figure out how much you make and then slice your budget accordingly to these budget category percentage allocations.
If you want to give 10% and you make $4,000 per month, then you know you need to put $400 into the give category.
Track Your Spending Every Month and Enter Purchases Frequently
Be sure you get a receipt for every purchase or write it down. On a regular basis (weekly or biweekly) take your receipts and enter the purchases. If you do it weekly, in about 20 minutes a week you should be able to maintain your spending plan. Budgeting is not a waste of time because in those 20 minutes you are saving a lot of money.
Tweak, Tweak, and Re-tweak:
After you have set everything up you will find some categories need more money. Take some money from one category and move it to another. Each month you will find that the budgeting is working better and requiring less time.
If you’re interested, here’s A Sneak Peak into Our Budgeting Process.
What has helped you budget successfully?
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