When looking at creating a personal or household budget many people may be deterred or intimidated by the process. From the outside, it may seem complicated, but creating a budget is much easier than you may think. At Fundamental Finance Academy we are dedicated to pushing aside some of the old myths about budgeting and helping get people back on the right financial track. Get started on creating your personal budget with the following tips:
One thing to keep in mind is that the math involved in budgeting is not terribly complicated. Money comes in and money goes out and you want to set things up so that more of the former is happening than the latter. What to do with that leftover money is another discussion, but for the time being, let’s just focus on these two main points. It’s simple addition and subtraction, but taking the time to do it right can make a huge difference to your long-term financial well-being.
Another thing that makes creating a budget easy is having the right information on hand from the start. Gather up your credit card statements, checkbook, and bills. Now you have everything you need to get started making your budget.
The first step is to determine exactly how much money you’ve got coming in. Sounds easy, right? There are some incredible tools out there now (such as Mint.com and QuickBooks) that will help you visualize your aggregate income. If you work more than one job or have a side project that makes you a little money occasionally, or if you have some holiday checks to deposit, it all counts. Rather than add up these disparate sources of income by yourself its much easier (and often more accurate) to let an application do the math.
The next step is to determine how much money you’ve got going out. Have a look at your bills over the last few months and ask yourself whether each one is truly essential or rather just something you enjoy. Fixed expenses are expenditures that don’t fluctuate greatly like rent, insurance, and subscription fees. Variable expenses can fluctuate from month to month. They include electricity, food, clothes, and entertainment. Lumping your outgoing money into these two main categories (fixed and variable) will make things easier when you start prioritizing where to make cuts and developing a long term strategy.
Believe it or not, if you have followed along with these few easy steps, you have yourself a very basic budget. After all, the foundation of a good budget is simply an honest accounting of your transactions, incoming and outgoing. To make your budget start working for you, you’ll need to begin listing your financial priorities and developing a road map for how to make those priorities into reality. We’ll cover these topics in later blog posts and go into further detail about how to turn your basic budget into something even more useful. Remember, if you need any help along the way, Fundamental Finance Academy has the tools and experience to help.