If you’re going to take the time to do something, you should do it right. For example, take a look at the recent debacle concerning Maker’s Mark. In order to meet increased demand, the company proposed the idea of watering down its whiskey. Now, if you drink whiskey, you might find such an idea to be quite offensive, and you wouldn’t be alone. A large number of Maker’s Mark fans protested this solution, eventually causing the company to change its mind.
What these people told Maker’s Mark was that if you’re going to do it, you had best do it right! The same idea holds true for a variety of things in your life. For example, if you are going to take control of your finances, you shouldn’t take a watered-down approach. Instead you should invest the time that you need to create a comprehensive plan, and the best place to start is with a budget.
The Dreaded Budget
You cannot take control of your finances if you don’t have a very thorough understanding of what you make and what you spend. Setting up a budget takes some time, and you’ll want to give yourself at least an hour or two to get started. You can either create your own budget using a spreadsheet (or a pen and paper if you want), or you can utilize a variety of budgeting tools (both free and paid) that you can find online.
For example, a good free spreadsheet to help you get started can be found here, and sites like Mint and Hello Wallet have all been designed to help you keep track of your finances so that you can do things like create a budget.
Before you set up your budget sheet, you want to take a look at your past finances. How much do you spend on average and on what? You want to start thinking of some spending categories (Visa bill, groceries, etc.). Also, you want to note how much you make each month. If you spend more than you make, you need to reduce spending in certain areas. If you make more than you spend, you’re doing well. By looking at what you have spent in the past and what you would like to spend in the future, you can set a monthly budgeted amount for each spending category.
The easiest way to set up a budget is on a monthly basis. You can do this in a spreadsheet. You will want to make a tab or a page for each month of the year in your spreadsheet, and then you will want to write down your spending categories. For example, you will want to make columns for all of your bills such as electricity, water, sewer, student loan payments, mortgage payments, car payments, credit card bills, etc. If you pay the same amount for something on a monthly basis, it’s a fixed expense. If you pay a varying amount, it’s a variable expense, and you will want to separate the two types of expenses on your budget. Variable expenses include things that vary, like water, groceries, entertainment, dining out, gifts, medical expenses, household expenses, etc. Other good categories to have include saving (how much money you put into your savings account) and miscellaneous (to catch everything else not currently in a spending category).
Then as you spend money in these categories, you will record it. For example, you spend $34.76 on dinner for two. You would put that under your eating out category. Make your spreadsheet calculates the total of each column at the bottom of the page. You can either make 31 rows, one for each day, or simply record the transactions one by one as they occur.
Finally, you want a row for the total amount spent, the total amount budgeted, and the difference between the two, and at the end you want a column for the grand totals of what you spent, what you budgeted, and the difference.
March 2013 Budget
|Spending Categories||Mortgage||Water||Groceries||Entertainment||GRAND TOTALS|
This is a very simplified example of what your monthly budget might look like. As you can see, you were right on track with your mortgage, a little under on water and groceries, and a little over on entertainment.
You will also want to move over a few columns and record your income for each month and the difference between total spent on all the categories and your income. This will show you whether you made more than you spent or vice versa.
|Grand Total Spent||$1410.80|
As you can see, you were under budget by about $200 this month.
A budget like this takes a little adjusting here and there until you get it the way you want it. If you are less concerned with doing it exactly how you want to do it, there are many resources out to help you create a budget.
Finally, if a budget simply cramps your style, check out this article about how to create a sexy spending plan instead of a restrictive budget.
What About You?
Do you have a budget? Do you have your own budget or use a program? Which program do you use? Would you add anything to your budget that was not mentioned in this article?
Photo courtesy adie reed