Budgeting Made Easy

For most people, being on a budget feels like being on a diet. The first thing people think of when they consider a budget is restrictions. Having a budget isn’t about restricting; it’s more about knowing where your money is going and knowing where your money goes is one of the most crucial steps to financial planning. I recommend doing the 30-day spending challenge I wrote about here: 30-day Challenge to track your expenses. Creating a simple budget is easy. Here’s how I recommend starting.

1.       Income. On the left side of your excel sheet or piece of paper, list how much you make in a month. Then on the right side, list your bills.

2.      Fixed bills. Start with listing your fixed bills. These are the bills that never change regardless of how you conduct your life and/or the minimum payments on installment loans. This typically includes rent/mortgage, insurance, car and student loan payments and sewer/trash bills. Generally speaking, you have no control over these bills.

3.      Variable bills. Next, list your variable bills. These are bills where if needed, you can reduce them if you need additional money. This typically includes gas, food, cable, phone, electricity, water, etc. When people come to see in dire financial need, it’s easy to reduce fast food consumption or simply downgrade current internet and cable service freeing up additional income to get out of their predicament. Use an average or use the last month’s bill to keep track of the amount.

4.      Take your income less your fixed and variable bills. Subtract your bills from your income and see how much “discretionary” funding you have available. The amount you have left will determine how you should proceed with your budget.

5.      Credit Card debt. Always list your credit card debt as a bill last. It is important to understand the negative impact of credit cards. Depending on your financial situation, you may only be able to pay the minimum payments from your available funding. If you have more money after you pay the minimum payments, then put more towards your credit card debt to help pay it off sooner.

6.      Savings. After paying your bills and credit card debt, the rest can be put to whatever savings strategy you are pursuing.

Creating a budget is that simple. It doesn’t require complex excel knowledge, a mathematics degree or expensive apps. If you get a promotion, you can quickly see the impact so you can increase your credit card payments or your savings. If you get into financial trouble, you can start reducing how much you pay towards your credit cards or you can put more money towards your variable bills. One quick tip: Don’t round your bills. People who round their bills, miss an opportunity to focus fire on financial objective. That being said, here’s a sample budget.

Income (Step 1)	Fixed Bills (Step 2)	Variable Bills (Step 3)	Income – Bills (Step 4)	Credit Cards (Step 5)	Savings (Step 6)
$5,000	-$1,500	-$500		-$200
	-$750	-$250		-$150
	-$250	-$200		-$75
$5,000	-$2,500	-$950	$1,550	-$425	$1,125