What is budgeting?

The goal of budgeting is to achieve a successful balance between income and expense. Every day that we work we are rewarded with income. Equally, or unequally, every day that we make purchases or invest our income results in expenses.

How do I budget?

The crucial first step to budgeting is to undertake an exhaustive and honest analysis of the money coming in (income) and the money going out (expense). You must know where your money is coming from—income from work, investment, child support or alimony, or maybe even payments associated with property you own. More importantly, we need to know what we spend our money on—food, shelter, heat, light, clothing, entertainment, debt, etc.

After an honest description has been made of income and expenses, you can assess whether or not the goal of financial balance has been achieved. Are you in balance? Are your expenses greater than your income? If they are, you are not the only one in this situation. Many households experience periods of financial unbalance. Now that you are aware, you can combat the disproportion of income and expense through an effective budgeting plan. A good first step in planning your budget is to determine (from your honest assessment) the percentage of spending in these useful categories: housing, food, utilities, transportation, clothing, medical, debt payment, and luxury. Did you find that spending in one category is oddly higher than in the others?

What should I cut?

If you determine that cutting expenses is necessary, here are a couple suggestions. Luxury and entertainment is the first place to look for spending excess. There are practical ways to save money in this category. Are you eating out more than once or twice a week? Could you spend less on cable television? What does your cell phone bill look like? Lots of small charges add up quickly. Debt can also be very expensive. If you are carrying the burden of credit card debt, eliminating it should become a top priority.

Cut vs. Control

Obviously, the most important categories mentioned above are food, shelter, clothing, and transportation. Without these we couldn't survive. However, even these categories can be controlled. Price comparison and value shopping may seem like saving pennies, but those pennies lead to dollars just as quickly as those little charges add up and run out of control. Buy used rather than new. Consider buying items like clothing, furniture, and cars used. You will be able to reward yourself in the future with the money you save today.

Budgeting is a Habit

It is important to remember that budgeting is a habit and will take some effort. Set aside a specific day of the week to review your budget for an hour or so. Make an appointment with yourself to discuss your financial wellbeing. Never forget that your budget is a living, breathing thing. Some months you may have more expenses than others (your car breaks down, you get sick and need medical attention). Maybe you came into some unexpected extra cash (a bonus at work, a friend repays a debt you had written off). Now that you are honest with yourself, you will find a way to balance your budget and achieve financial balance in the process.