101 Guide to Creating a Budget

101 Guide to Creating a Budget

March 5, 2018

Budgets are necessary. 

They’re the only practical way to get a grip on your spending – and to make sure your money is being used the way you want it to be used.


Creating a budget generally requires three steps.

  1. Identify how you’re spending money now. You and your significant other should keep a pocket size notebook with you for a period of 60 days. During this time, write down every penny you spend. At the end of the 60 days, place your expenditures into its respective expense category. Finally, total the expenses for each category then divide by 2. This will give you your budget starting point.
  2. Evaluate your current spending and set goals that take into account your long-term financial objectives.
  3. Track your spending to make sure it stays within those guidelines.


Use software to save time. 

If you use a personal finance program such as Quicken or Microsoft Money, the built-in budget-making tools can create your budget for you. If you are not computer savvy, list your expenses across the top of a ledger sheet and the days of the month down the left side of the ledger sheet.


Don’t drive yourself crazy. 

One drawback of monitoring your spending by computer is that it encourages overzealous attention to detail. Once you determine which categories of spending can and should be cut (or expanded), concentrate on those categories and worry less about other aspects of your spending.


Watch out for cash leakage. general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.

If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it’s time to keep better records. In general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.


Spending beyond your limits is dangerous. 

But if you do, you’ve got plenty of company. Government figures show that many households with total income of $50,000 or less are spending more than they bring in. This doesn’t make you an automatic candidate for bankruptcy – but it’s definitely a sign you need to make some serious spending cuts.


Beware of luxuries disguised as necessities. 

If your income doesn’t cover your costs, then some of your spending is probably for luxuries – even if you’ve been considering them to be fulfilling a real need.


Pay yourself first. 

Aim to spend no more than 90% of your income. That way, you’ll have the other 10% left to save for your big-picture items.


Don’t count on money you do not have. 

When projecting the amount of money you can live on, don’t include dollars that you can’t be sure you’ll receive, such as year-end bonuses, tax refunds, inheritances or investment gains.


Beware of spending creep.

As your annual income climbs from raises, promotions and investing, start saving and investing more. Don’t let the saying, “the more make the more you spend” apply to you. It’s better to use those income increases as an excuse to save more.

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