Making A Budget – 5 Insider Tips
Yes, making a budget is, without a doubt, the foundation to establishing control of your finances. Putting proper budgeting techniques to use will enable you to track all of your incoming and outgoing cash to help you eliminate unnecessary expenses resulting in substantial savings.
Tip 1 - Budgeting Basics
Putting together a budget isn’t at the top of most people’s fun list. However, going without budget will certainly not be fun if you don’t know how you’re doing financially.
Once you put together and work your budget, you’ll be surprised at how much unnecessary spending you’ll uncover. For instance, going out to lunch everyday, buying that coffee in the morning, impulse shopping, etc. really does add up.
In a nutshell, a budget will track where your money is coming and going. It will indicate your revenue (cash coming in), expenses (cash going out), and what you have left over (net income) after subtracting expenses from revenues.
Tip 2 – The Budget Worksheet
I would recommend putting together your initial worksheet by hand. Some people like to use Excel. You can also find an array of free on-line spreadsheets through google docs (docs.google.com).
Keeping it simple and getting the worksheet done it what’s important. Many people find that taking a pencil to paper approach to constructing the worksheet works well because they can better absorb the information. Of course, use whatever you feel most comfortable with.
Tip 3 - The Money Flow
Here you’ll list your monthly income, your monthly expenses and subtract your expenses from income to come up with your net figure. This net figure will tell you if you’re income exceeds your expenses or vise versa.
Ideally, you’ll want to have a positive net figure. Unfortunately, in many cases, that positive cash flow number isn’t as large as you would like it to be. Or worse yet, you may be showing negative cash flow. The good news, there is light at the end of the tunnel – adjust.
Tip 4 – Adjust
If you would like to have more money left over at the end of the month or you’re spending more than you’re taking in, don’t despair. You’re just going to have to make some adjustments.
Take a look at your expense items on your budget sheet. Do you see areas that you’ve flagged as being wasteful spending? Perhaps you’re overspending at the department or grocery store? Maybe you can spend less on a cell phone plan, cut back on premium TV and eliminate unnecessary expenditures.
Tip 5 – Envelope Budgeting
The beauty of this system is its simplicity. It’s a very effective budgeting tool that uses envelopes to track your monthly spending. Envelope budgeting is a method of budgeting where you set aside cash money each month for a specific budget item in an envelope.
What’s really ideal about envelope budgeting is it forces you to live within your means. Once you’ve spent the money you have for a budget category, you cannot spend additional money for that category until you put more money into the envelope the following month per your budget.
Another great feature of envelope budgeting – you’ll know how much money you have left to spend in a given category at any time by just simply counting the cash in your envelope. If you have the cash, great. If not, you hold off spending on a category until you accumulate the necessary cash.
For instance, you put $200 a month into your clothes envelope. At the beginning of the next month (month 2), you put another $200 cash into this envelope. Let’s say at this point, you count what you have in this envelope and its $225 (meaning you spent $175 of the $200 in month 1).
You now have $225 to spend to get you through the remainder of month 2. If you spend less than the $225, your clothes envelope cash will continue to accumulate. On the other hand, if you spend the entire $225, you cannot spend additional money on clothes until you put another $200 into this envelope at the beginning of month 3.
About the Author
Tim is the editor of http://frugal-save-wave.com where you’ll get the answers you need to live better on less through wise family money management.
These money saving strategies include tips on frugal living, budgeting money, eliminating debt and more.
Tim doesn’t just write about these strategies, he lives them. Tim also has an MBA in finance as well as over 20 years of professional experience in personal finance.
For additional information to assist you in Making A Budget, see http://www.frugal-save-wave.com/making-a-budget.html and http://www.frugal-save-wave.com/envelope-budgeting.html.