Six Steps to a Solid Budget

Let me preface this (and every Financial Friday post from now on) by saying that I’m not a financial advisor or anything of the sort.  But some things are common sense.  One of those things being that most things in life work better when you have some kind of a plan, and thus, today I am tackling the issue of establishing a personal budget.

No budget is going to work for everyone.  Mine will differ from yours because my expenses differ from yours.  But the method for establishing one should be the same for everyone (or at least for those who don’t have a trusted financial advisor to do it for us).  So below, I have set out some steps to help you get to the point where you can develop a budget that works for your life.

1 – Commit to yourself that you are going to be disciplined.  Without commitment, a budget is nothing more than a list of suggestions and moving to step two of this list is a waste of your time.
2 – Take an honest inventory of your spending habits.  This has to be thorough and can be done on a Saturday afternoon by looking at your bank/credit card records if you don’t frequently use cash.  However, if you use cash regularly and don’t keep a ledger of expenses, this will take some time.  You need to be able to accurately examine 3 months of spending and determine trends, both logical (bills) and illogical ($300 bar tabs).
3 – Set goals for yourself financially.  At your current income, where do you want to be financially three months from now?  Six months?  One year?  This is not just speaking of where how much you want in your checking account, but also how much you want in savings and where you want your debt to be (if you have any).
4 – Decide what is missing and what can go.  All work and no play makes Jack a dull boy (or Jill a boring girl) but you also must ask yourself “Am I really being wise with my money and preparing for my future?”  For instance, do you really need a new phone or can you get by with that nearly invisible crack in your screen until it’s time for you to upgrade?
5 – Sit down and write out what amount of each check should go where based upon steps three and four.  I like amounts more than percentages because, if you work hourly or get bonuses, that money can be used at your discretion.  It gives you incentive to work harder as well as a bit of wiggle room.  Tinker with the amounts and figure out what works best for you, realizing that a budget is a working document that will have to be reevaluated regularly.  Your electricity bill will change with the seasons so you’ll likely need to adjust your budget in the fall and the spring to account for that.
6 – Once you establish the budget, stick to it.  The discipline will allow you to grow financially and mature as a person.

For sample budgets, I would recommend you put “create a budget” into a search engine and find a site that you like to further assist you.

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