How To Set Up An Achievable Budget

How many times do you despair and wonder where all your money went? The easiest way around this is to create a budget and to stick to it. And therein lies the problem. People create an elaborate spreadsheet with all sorts of categories and separate headings and before they can put in their first months expenses, they are lost in which amount fits into which category. It is pointless setting up a budget within which you cannot live. If recording what you spend is too complicated, how are you ever going to be disciplined enough to make the budget work?

The first step towards financial freedom is creating a budget – how many times have you heard that and shrugged your shoulders? To illustrate just how important a budget is, look at what Oscar Wilde said, “When I was young I used to think that money was the most important thing in life; now that I am old, I know it is.” * He said this in the nineteenth century and it is even more relevant today in the twenty first century. So if you had any doubts at all about drawing up a spending plan, they should now all be swept away and you should be ready to listen to the different ways in which you can structure your budget. Once you have this under your belt, you can then look at putting together a yearly spending plan.

It goes without saying that you need all your bills, credit card statements and bank statements together in one place. Obviously you know what your income is, – but do you know what it is after your deductions for tax, medical care and insurances? Record your gross income without deductions and then your net income with deductions. Set up separate columns for all fixed monthly expenses – mortgage payments, car payments, utilities, cable TV, insurances and so on. Sometimes it is best to pay your insurances upfront every year, so remember to divide that figure by 12 months. Total it up and subtract it from your income. What is left is the money you have to spend on groceries, gas, entertainment and other products or activities. If this is a negative amount, then you have a problem – and that is why you need to develop a realistic budget. You need to seriously consider what you can do without – maybe cancel your cable TV or even consider moving to a cheaper house or apartment. Yes, you have to be that drastic otherwise reality will not hit you until you find yourself in line for debt counseling.

Now you have the basics set up for tracking your expenditure, keep on monitoring how much money you have left. You have to keep reminding yourself that your financial fitness depends on you only. You have to develop a lifestyle that fits in with your budget – not the other way around. You may have to adjust certain habits you have become used to as you start to realize how much they are costing you. And you need to take into account that groceries, clothes and miscellaneous expenses are going to vary each month – so make sure you have a slush fund that you can access when you need to. It is this pool of left over money that requires the greatest discipline because if you overspend here, then you are forced to use a credit card which creates more debt which costs you more interest which increases your credit card bill – and so you get caught up in the proverbial Catch-22 situation.

A way of dealing with this left over money is to divide it up into weekly amounts so you know what you have to spend each week. Or you can divide it up according to how you want to spend it – so much for clothes, so much for entertainment and so on. Keep yourself focused on the present and the reality of living within boundaries. Your budget needs to be re-evaluated every month or so until you get used to monitoring your expenses. Remember that you can only budget for money that you have coming in on a regular basis. You cannot budget for money that you are going to spend on credit because then you are asking for trouble. In the long run, a budget is actually saving you money. It is not a chore – it is a way of creating wealth.