Budgets don’t’ have to be a ball and chain keeping you from fun. Another common misconception about budgets is that they are alone for people with alot of money. If you make $20,000 or $200,000, you need a budget. So let’s get into the details of what a budget is, what it isn’t, and how to create one that fits your situation.

What is a budget?

A budget is really just a plan for what to do with your money. It can also be a road map to the things you want. If you really want a new car you can create a spending plan that helps you see where you can cut back to afford the down payment and any additional payments.

What a budget is not?

It’s not a magic cure all to your money issues. If you’re not honest when you create it, it becomes useless.

How to create one?

The first step in preparing a budget is to gather your most recent paystubs. You need a good estimate of when your money is coming and the amount. Next gather your monthly bills (rent/mortgage, electric, gas, etc.). This will get you your basic inflow and outflow of cash. It may be handy to have a monthly calendar to put down when money will come in and go out. The next thing is to track your more discretional spending (groceries, dining out, clothes). A month is a good amount of time to track to get a general idea of what you spend money on. You can use the system which works best for you to keep track of your money. Some of the programs out there are Quicken, Microsoft Excel or good old paper and pencil.

The main point of tracking is to get a good idea of where your money is going. You will surprise yourself on where your money is really going.

Once you’ve got all that information the next step is to decide how you want to spend your money.

I’ve created one, Now What?

Once you finish creating your plan for spending you need to put it in to action. You’ll need to be much more aware of your spending and possibly make decision about whether things are needed or wanted. It’s a good idea to compare your actually spending to what you have planned to spend. Budgets are not static and never changing. As your situation changes (raises, children, etc.) you need to re-evaluate whether your budget is meeting your needs.

Are you going to use the other ‘B’ word?