By Jake Nixon
Throughout my high school years, I always thought that budgeting was a waste of time and that meant I couldn’t buy or do the things that I wanted. As I have matured, I have learned that the contrary is true. Budgeting is not a synonym for being a frugal penny-pincher, rather it is a written plan that is used to achieve maximum utility from your money. We will break down budgeting into 5 easy steps.
The first step to creating a budget is to understand the things that are most important in your life. These are often called “priorities.” The process of making priorities will help you understand where your heart is. Even just writing them down on a piece of paper will help you realize what matters most. Some priorities that you could possibly have are to be financially stable or to have no excessive debt.
The second step of budgeting is to make goals that align with these priorities. An example of this could be making an emergency fund by setting aside $20 a month for 2 years, or by allocating $30 more to credit card debt until it is paid off. Whatever your goal may be, it is crucial to make the goal Specific, Measurable, Achievable, Realistic, and Time-bound. The acronym SMART can help you remember the parts of a goal. It is also important to make sure to write these goals down and put them in a visible place so that you can remember them as you are forming your budget and going about your day to day life. These goals will help shape your budget in step three.
The third step to budgeting is to plan how much you are going to make for this upcoming month, and where you are going to spend it. Whether you would like to do it on excel, or use a sheet of paper, it will help to have different categories listed. Examples of these categories could be: Savings, Donations, Food, Credit Cards/Loans, Medical/Insurance, Utilities, Entertainment, Grooming/Toiletries, etc. Decide how much you are going to spend by looking at your past spending history. The easiest way I have found to do this is by looking at online banking from your bank or credit union. Make sure that you enter in the goals you made in step 2 into your budget, as well as all other possible expenses for the month. If you made the goal to set aside $20 dollars into an emergency fund, put that $20 into the savings category. If you made the goal to add 30 more dollars to your credit card debt, go to the credit card category and add $30, etc.
The fourth step is to track expenses throughout the month. As you swipe your card, put the different expenses into the corresponding categories. Please note that in order to be successful you should have a sheet with your estimated expenses and one with your actual expenses. Having two separate sheets with help you stay organized.
Step number five: evaluate how much money you actually spent and compare it to your predicted expenses. Reconcile these two accounts and use it to make your plan for the next month. As the months go by this will help you fine tune your budget. Just remember, that if one way of budgeting doesn’t work out there are several different ways to budget. If you need help figuring it out, make an appointment and talked to our counselors. We would love to help you create a budget.