Budget: no pain, plenty to gain!

Budget. Admittedly, not most people’s favorite word. But it should be! And here’s why: budgeting leads to increased wealth. It is one of the easiest (I’m talking third grade math here) ways to stay on track to reach your financial goals. A solid budget is really the foundation of any financial plan. Most people think having a budget means you can’t have any fun with your money, which is not true. Having a budget simply means you understand where your money is going. Once you understand where your money is going, you then have a basis for future financial decisions.

A budget is like a roadmap (or if you’re like me, a GPS system you can’t get anywhere without!). You can drive in circles all you want, but if you don’t stop and ask for directions, you’ll go through the woods and over the bridge and end up on the wrong side of the track . . . and without any money.

If you can add and subtract, you can make a budget. With today’s technology there are tools that make this process even faster and simpler.

Letting Excel do the Work:

Using Excel, you can easily keep track of information you’ll need for a basic budget. Begin by labeling your top columns as follows: Expenses and Amount.

Expenses	Amount
A

From here, begin labeling your vertical columns with typical monthly expenses. My suggestion is to keep it simple. Although a budget should be precise, we don’t want to list every little expense. This would be energy and time deficient and it’s likely one would quit keeping up with it.

Start by listing the basic bills you know you will be paying each month such as rent/mortgage, utilities, car, student loan and credit card payments, gasoline (a growing part of everyone’s budget!), insurance, cable, phone and internet. Don’t forget to include food, clothing, savings, travel expenses, entertainment and miscellaneous. An example of our budget so far might look like this:

From here, begin labeling your vertical columns with typical monthly expenses. My suggestion is to keep it simple. Although a budget should be precise, we don’t want to list every little expense. This would be energy and time deficient and it’s likely one would quit keeping up with it.

Start by listing the basic bills you know you will be paying each month such as rent/mortgage, utilities, car, student loan and credit card payments, gasoline (a growing part of everyone’s budget!), insurance, cable, phone and internet. Don’t forget to include food, clothing, savings, travel expenses, entertainment and miscellaneous. An example of our budget so far might look like this:

Expense	Amount
Mortgage
Utilities
Car Pmt + Repairs
Student Loan Pmt
Credit Card Pmt
Gasoline
Insurance
Cable, phone and internet
Food
Clothing
Savings
Travel/Vacation
Entertainment
Gifts/Charity
Miscellaneous

It’s important to realize you should customize your own budget. Your budget and your friend’s budget are not going to be the same. For example, if you spend a lot of money at the vet for precious little Spot, that’s something you’d want to include in your budget. Or if you practice Yoga three times a week at $25 a pose, that should be included.

Each month, take the time to fill out the amount you spend in each column. This can be done retroactively, or you can use this same spreadsheet to project monthly budgetary goals. In our case, let’s assume we are doing it retroactively. It might look like this:

Expense	Amount
Mortgage	$1200
Utilities	$300
Car Pmt + Repairs	$400
Student Loan Pmt	$115
Credit Card Pmt	$228
Gasoline	$150
Insurance	$15
Cable, phone and internet	$120
Food	$400
Clothing	$350
Savings	$50
Travel/Vacation	$0
Entertainment	$200
Gifts/Charity	$100
Miscellaneous	$350

Lastly, we want to add all of our expenses together to find the total. If you have entered all the data into Excel this is as easy as clicking some buttons! Click on the box underneath our last entry of $350 for miscellaneous items. From there, click the auto sum button (which looks like a Sigma). Then press enter. Voila! We now have our grand total:

Expense	Amount
Mortgage	$1200
Utilities	$300
Car Pmt + Repairs	$400
Student Loan Pmt	$115
Credit Card Pmt	$228
Gasoline	$150
Insurance	$15
Cable, phone and internet	$120
Food	$400
Clothing	$350
Savings	$50
Travel/Vacation	$0
Entertainment	$200
Gifts/Charity	$100
Miscellaneous	$350
TOTAL	$3,978

Online Bank Statements: Our Friends!

Another budgeting tool to use is online bank statements to keep track of expenses. If, for example, you use one bank account to pay all of your expenses and bills, your statement itself can be used as, or incorporated with, a budget. This is a great starting point to getting your finances in order. It is also very accurate and detailed which will produce a precise budget. If you have multiple bank accounts and credit card statements, printing these at the end of each month and reviewing them can also serve as a budgeting tool. Online bill pay will also allow you to save on postage costs, which means more money left over!

So I have a Budget: Now What?

Remember when I said making a budget is easy? Well it is. The hard part is implementing action steps in result of your budget. Budgeting is an active process. One that needs review and determination. If you’re not willing to execute needed changes in result of preparing a budget, then it’s not worth any more than the paper you printed it on.

Implementing a budget simply means learning from it and using it as a guide. For example, after reviewing a few months worth of budgets you might be surprised to see you’ve spent $150 a month on lattes. Or you might find that while you are spending $400 on entertainment and clothes, you really haven’t been paying as much as you should toward credit card debt or savings.

Preparing a budget can also be a good way to spot excessive costs and ways to cut back. For example, after preparing our budget at home, I discovered we were over paying for our trash pick-up. Since we have a homeowner’s association in our neighborhood, we receive discount service. Had I not looked over our budget, I would never have identified this error.

Your Budget, Your Dreams:

Your budget says a lot about you. What you spend your money on is, in a way, a reflection of your values. When you take an objective look at your budget, do you like what you see? If so, keep up the good work! If not, tailor your lifestyle and budget to reflect what you think is important.

Once your budget is defined, write down realistic financial goals you hope to accomplish in the short and long term. Subtract your monthly income by your monthly expenses (identified through the use of budgeting) to see what is left over. This “leftover” money can serve as a piggy bank for your dreams. Dedicate your piggybank money to your goals, whatever they might be: paying down debt, saving for retirement, buying a home or vacation home, or taking a family trip. Continue to find ways to make your budget work for you . . . not the other way around.

As with anything in life, perfecting your budget will take practice. There is no better starting point to financial success than a sound and basic budget.