Thursday, November 16, 2006

Create a Budget

The #1 Best way to pay off debt, increase your savings, and make your money work for you is to Create a Budget. You can't do anything with your money until you know how much money you have to work with. You can't know how much money there is to work with until you see where your money is going.

A budget is really not that hard. All you have to do is come up with some general categories that you spend money on and start listing how much money you spend on each one during each period. A period could be a day, a week, a month, even a year. It all depends on how often you spend money and how tight you want the reins to be on your money.

So, let's come up with some categories. Everyone buys Food, so that is one category. You can call it Groceries, Dining, Food, etc. Use whatever category titles you feel comfortable with. This is a list of common categories. You can use these or make up your own.

You can use budgeting software, spreadsheets, or just a pencil and paper to keep track of your budget. It doesn't matter what you use. The point isn't to be fancy. Just make it user friendly.

I started out using Money, then I switched to Quicken. But, both of them were just too much trouble for me. I didn't want to deal with all the details. I wanted to just enter figures and be done with it.

Now, I use a budget spreadsheet. I didn't even have to code the spreadsheet because I found a great one for FREE at It's called a Spending Plan Spreadsheet and it's coded for Microsoft Excel.

If you don't have Excel and don't want to buy it (who would?), there is a FREE software suite called OpenOffice. It works great (I use it even though I have Excel) and it's compatible with Excel. That means it works just fine with the spreadsheet from, and most other spreadsheets you might have.

OK, you have your budget. Now, all you need to do is save all your receipts. I know, I know, it's a pain, but it's just a habit to get into. It's not hard. It's just something you need to get used to doing. Just stuff the receipts into a bag each day (be sure you don't accidently throw this bag away!)

Once you have all your receipts for the budget period (a day, a week, a month, a year), sit down and separate them into categories. Remember your categories? Food, Rent, etc. After you've separated them, add up each category and write it (or type it) into your budget.

Now, look into your checkbook register for any expense you didn't have a receipt for and add these to your budget (like the electric or water bill). Don't forget any credit card charges you didn't get a receipt for, record those too.

After keeping track of where your money is going for a few periods, you will probably decide that too much of your money is going to some of the categories (maybe food or entertainment).

This is when you get to tell your money where you want it to go. Write another column in your budget or use the spreadsheet columns to fill in where and how much money you want to go into each category.

That's it!

That's as hard as it gets. It's not so bad, huh?! The great thing is that once you see where your money is going, you can decide if that's really where you want it to go.

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