Budgeting 101: What Is A Budget And How Do I Get Started?

Contando Dinheiro
Creative Commons License photo credit: Jeff Belmonte

In an effort to get back to basics I’d like to start with the basics of a budget.  I’ve received many emails about setting up a budget, so if this is something that you’d like to solidify in the new year, read on.

What is a Budget?

When most people think of a budget they think restriction.  And, the reality is that it is just that, let’s not sugar coat it.  the reason why you’re reading this blog is because maybe you need to put a few reigns on your finances.  Just sayin’.

Living within your means allows you to pay your bills on time, save for a rainy day/retirement and pay down or avoid debt while splurging every now and again.  Budgeting essentially helps you plan your finances by listing all future income and the related expenses.  Based on those expenses you then make decisions about the necessary and optional items needed to live within your means.

Why Do I Need One?

Most people need a budget.  Why?  They need  a tool to keep them from living above and beyond their means.  If you find yourself in the negative at the end of the month or waiting for your next paycheck anxiously, and it’s a week out then you need a budget.  A budget helps you plan for planned and unplanned expenses while putting a some funds away for a rainy day or paying off debt.

How Can A Budget Help Me?

A budget will give you much needed insight into your finances which may not have had in the past.  It can help your understand where your money is going every month and help you plan for certain expenses.  Now, some people are able to live within their means without a formal budget, but most aren’t that lucky and need to create one in order to keep their finances in check.

How Do I Get Started?

It’s easier than you think!

First, take a look at your debit card statements and bills. Based on that determine where your money has been going over the last 1-3 months.   Yodlee.com is one of my personal favorite financial aggregation sites if you have multiple accounts at several institutions.  Even if you just have one that’s fine too.  Sign up for their Money Center and categorize your transactions to get the skinny on your money.

Second, figure out what categories need adjustments and set goals accordingly. Are you eating out too much?  Five too many happy hours?  Did Target see you too many times over the course of the last month?  I can relate, but I digress.  All of what I just mentioned are optional items but of course we have necessities like utilities.  If your paying too much on your electric bill you may want to consider how you can conserve energy and lower that bill.

Other adjustments to regular bills may include calling your credit card company and asking for a reduction in your interest rate which may result in a reduction in your monthly payment.   Take a look at all of your categories and determine where and how you can cut back.

Third, once you’ve set goals, track them! As I mentioned before I like Yodlee.com and Mint.com for just this purpose: tracking spending, creating a budget and goal maintenance.

Until then, take a look at Yodlee and Mint to see how you like it.

  • Marlecken

    If your bank has home banking start with that pay all your bills first every PAYDAY and you’ll see there’s not much left.  If there is, it is a must to create a 401K fund or IRA as soon as you start working.  I use BOFA homebanking they have other tools like setting up PORTFOLIO all your credit cards; see how much debt you owe.  They also have BUDGET plan you can set up.  Just make use of your own bank.  BOFA is strict, they’ll charge you overdrafts, so you can discipline yourself just banking with them. 

  • http://www.victory-by-design.com/askyourcoach victorybydesign

    This is a great post. You have some great points. There are a few things that I would like to point out with the nature of a budget.

    1. It is just a tool. Like any other tool it takes practice to become good at it and you have to have the desire to you use it initially and the discipline to re-use it over time.

    2. The main benefit is to make your money work harder. It does not matter your income level, if you tell your money what to do and make sure it does it, you will see tremendous results.
    •I like to use the example of a supervisor/employee relationship here. If you give your employee simple and clear instructions, they will work harder. If you follow up, encourage, and make necessary corrections along the way, your employee starts performing harder than you can have ever imagined.

    3. Living within your means and using a budget are not the same thing.
    •Living within your means just states that you do not spend more money than you earn(credit cards, loans, etc.)
    •A budget is directing your money to go where you want it to go, instead of wondering where it went
    •A lot of people utilize a budget, and live outside of their means

    4. A budget is more than just bills and expenses, it is taking control of your life. The number 1 thing people do not do when setting up a realistic budget is to account for the fun things in life regularly.
    •If you are a movie goer, then movies should be in your monthly budget
    •If you are a traveler, then saving for regular vacations should be in your monthly budget
    •If you are an active athlete and have gym memberships, yoga class, personal trainer, etc. plan for it

    5. Saving for the future is a huge component of the process. Whether it is for retirement, car purchase with cash, European vacation, major medical expense, take it all into account and plan for it.

    6. Plan to give. One of the benefits a realistic budget is that it allows you to prioritize giving consciously. Giving can often be a reaction to a circumstance, or response to a need, but it can also be a way of life.
    In conclusion, the budget should be an extension of your hopes and dreams, and a tool to help you reach them. If your budget's primary focus is to pay bills, then it is a chore and not the resource to unlock your potential. Creating a realistic budget will reduce stress and increase happiness and joy in your life.

    Ahmad Davis
    Money Management Coach
    Victory By Design

  • http://fashionablefunds.typepad.com/blog/ Fashionablefunds

    Hi Ginger!

    I love your blog….I agree that you need to track your spending to set up your budget. I have included my method for tracking daily spending and my wallet makeover at http://fashionablefunds.typepad.com/blog/

    I'd love to know what you think!

    Fashionable Funds