Monday, April 8, 2013

Spring Clean your Finances: You need a budget

I decided that for spring, I would start a new Monday series on some of the basic truths that I have found about personal finance.  So, I'm starting with what I think to be the core of everything: a budget.

You need  a budget.  In some way, shape, or form.  If you want to make any changes or progress to your current financial situation, you need a budget.

Your budget can take a variety of forms, and I've done many (a book, a sheet of paper, a spreadsheet, Quicken), but at it's most essential it is this:

You need to know how much you intend to spend on each of a variety of categories.  Then you need to spend that much, and only that much.

That's it.  There's no other magic than that.  But if you want any control over where your money is going, if you want to have more left at the end of the month, if you want to have more to save or to spend on areas that are important, you need to sit down and pay attention to it.

So, here's the most basic form of a budget.

Make a list of everything you spend money on in a month.  Do this with your bank statement or credit cards if you want.  Make a list of how much you want to spend on each of those categories.  For non-fixed expenses, this can be based on how much you were previously spending, or it can be an adjustment or goal. Make sure this doesn't add up to more than you make in a month.  If it does, adjust something.  If you have money left over, assign it to something (a saving goal, a loan repayment, a service you'd like to add on).

Then, during the month, you have to check in.  Keep a total of how much you've spent in each category.  You can do this every time you spend, or you can update it weekly.   If you overspend a category (which  you really should only do in an emergency!), adjust something else to make up for it.  The money has to come from somewhere.

That's it. That's the whole budget.  There are software solutions that will do some of the heavy lifting for you (Mint, for instance, is free), but you can do the whole thing yourself with a sheet of notebook paper.

Just do it.

Do you have a budget?  How do you keep track of it?  What strategies do you use for budgeting?