Practical Budgeting Made Easy

We all know that budgeting is important. A budget helps build financial stability by keeping spending in check and ensuring you don’t live beyond your means. However, many people do not keep a budget. Some think they don’t need a budget, while others know that they do but are afraid to dive in because it can seem like an intimidating, complex process. With the right tools and information, building a budget can be quick and easy. Here’s how to create a simple and practical budget for the time-strapped consumer.

Review your income and expenses

Most budgeting plans recommend tracking income and expenses for three months. In general, it’s a good idea to use this sort of time frame to account for seasonal spending, holidays, and out of the norm spending months. If you’re pressed for time, though, you can choose to look at one month and review your spending and income throughout this time. Just be sure to keep in mind and account for anything out of the ordinary that caused more spending (like a vacation) or increased income (like a tax refund or bonus) that won’t happen each month. Review your checking account details and credit card statements to see where your money went and what funds came in.

Compare income and expenses

Hold up your two numbers from the previous step and see how they compare. If your income outweighs your expenses, you’re doing great! If it falls short, you’ll need to either trim your expenses in the next step or look for ways to boost your income in order to bring your budget back into line. If the numbers more or less balance each other out, it’s still a good idea to trim expenses to leave some budget wiggle room. It’s difficult to keep such an exact balance, and it’s always better to err on the side of caution than risk overspending.

Assign a dollar amount to every expense category

Next, create different spending categories, review the ways you spend your money, and assign a dollar amount to each category. Be sure to include fixed and variable expenses as well as savings contributions.

If you’re pressed for time, you can opt for broader categories rather than very specific ones. For example, instead of setting a separate number for groceries, work lunches, and dining out, you can set an overall number for monthly food expenses.

Operate your budget in the way that works best for you. Jot down your dollar allocation on paper if you prefer an old-school approach or create a digital version of your budget and upload it to your personal devices for easy access.

If your income does not cover your expenses, or just barely covers them, look for ways to trim the fat however possible. Keep tabs on how any changes you make impacts your budget, and keep making tweaks until your budget feels comfortable.

Use technology

Harness the power of technology to help you track and manage your expenses well. A budgeting app can make tracking your monthly spending a breeze. You can upload your budget to the app, set up the categories you’ve decided on, and track expenses throughout the month. The app will let you know how much you’ve spent in each category and warn you when you’re approaching the limit.

Even if you prefer to sit down with a pen and paper to figure out your budget, you can still use technology to your advantage. Instead of writing down every single purchase you make in real time, your online statements can help you go back through the month in a timely manner with all of your purchases laid out at your fingertips.

Live with your budget

Now your initial budget set up is complete and you’re ready to put it to the test by living with your budget! See how it feels throughout the month and make notes of things that come up – did you have to pass on a social event because of your budget? Did your groceries run out before the end of the week, causing you to order pizza? Did you end up with an extra $200? Remember to keep your monthly expense categories in mind as you spend throughout the month.

If you find it too inconvenient or difficult to keep track of your spending throughout the month, the money envelope system can make it easier. It’s a simple system – at the beginning of each month, withdraw cash amounts for each non-discretionary expense category in your budget. Separate the cash amounts into envelopes marked for each category, then only use the money in the envelope for those specific expenses throughout the month.

Review and adjust

The final step is an ongoing one. Even though your budget is up and running, you’ll need to regularly review your plans to make sure it’s still working for you and adjust as needed. Everything changes over time, and a budget is no exception. Expenses will change, both for the good and the bad, and you will need to adjust accordingly. For example, if you have a car loan, then there should be a line in your budget to account for that payment. Then, in a few months, the loan is paid off – if you keep the same car, then you have extra space in your budget all of a sudden, but if you upgrade to a newer model, your payments may increase. In either situation, you will need to rearrange your budget.

The importance of budgeting cannot be denied. Without a proper budget, there is a lot of guesswork involved in your finances and that can lead to some nasty issues down the line. However, you don’t need to spend a lot of time or create an overly complicated system in order to effectively budget your money. Use this guide to help you create an easy, practical budget that works for you.