Friday Financial: Budgeting part 1
Welcome to the 6th installment in our financial discussion. If you’re just joining us, be sure to check out one (Values), two (Financial Goals), three, four (factors affecting finances) and five (Net Worth).
Budgeting… this word can strike fear in some, while others tend to find it stressful. While some still find it empowering.
So what is it about budgeting that can inspire such varied emotions. Partly it is due to the amount of money incoming vs. outgoing, partly it is our attitude. Changing our attitude about budgeting can be very freeing. Try to think of budgeting as YOU telling your money where to go, instead of wondering where it went.
How easy is it to tell our money where to go? There are some bills that we have no control over, right? Partly. Our choices determine our bills. Think of housing – we can own, rent, live in relatives basements, or be homeless. Our choice determines how much money we pay for the roof over our heads (or not.) Most of us do not typically choose to be homeless, even though it is the least expensive option (and yes, I have heard of people choosing to be homeless). Another example is our modes of communication – from a base house phone, to having internet, to having a basic cell phone, to a smart phone and the data plans that accompany them. Our choice for how we want to communicate determine how much we pay. Three years ago my husband and I turned in our cell phones (partly due to the lack of reception in the grad housing where we were living.) We got a pay as you go when we moved to keep in touch (for the 4 day driving trip.) Believe it or not, we still do not own a cell phone. That may change, but for us it was a necessity to not have it during the last few years when we were both only working part time (gotta love the economy sometimes!) I’m not trying to say that everybody has to turn in their cell phones and start living homeless. Just trying to point out that our choices can rule over our spending.
Budgeting actually forces you to think about what is important in your life. (Think back to the first post – what did you write on your top ten list?) Some questions you may ask yourself are:
- What do I want to own?
- How do I want to live? What will it take for me to support this lifestyle?
- What do you want to achieve in life (specific or general)
So now onto the budgeting process – in 7 (semi) easy steps.
- Set Goals (did you set some goals?)
- Estimate Income – how much do you make – easiest for salaried individuals, harder for those receiving commission.
- Estimate Expenses – How much do you spend – have you been tracking your spending? It will help with this!
- Create budget categories – then decide how much money goes in each… this is the hard part (at least I think so) making sure you don’t exceed your income when putting money in each category.
- Choose a budgeting system – discussed below
Choosing a budget system… there are a few different systems that are common, but you can also make up your own. Here are some of the common systems:
- One you purchase – typically a computer software
- One used online
- Envelope system – put money in envelopes (works for non-bills and you just take the cash with you when shopping. Keeps you from overspending.)
- Checkbook System – simply use a checkbook register
You can also create your own. You can use notebooks, use receipts, make your own worksheets, etc. The most important thing about choosing a budget system is doing what works for you! My husband and I use an excel book that he created. It tracks all our accounts with one main page that shows the balance of each. It subtracts the credit cards from our checking balance so we know how much we actually have to spend. If you want to see an example of how we do it – here it is. This is not actually our sheet, but an example one. Feel free to use it if you feel it will work for you.
Next week we’ll be discussing budget pitfalls and how to avoid them (or plan for them.)
Also keep coming back during the next week, I’ll be hosing giveaways on this site as well as on Crystal’s Cozy Kitchen. In fact I’ll be starting one later today…