Budgeting - Where Do I Start?

The thought of putting yourself and your family on a budget can often feels overwhelming for many. The truth of the matter is that not having a budget, operating with financial blinders on, is much more overwhelming than creating and sticking to a budget.

Before you even get started thinking about a budget, you'll probably want to spend some time assessing your attitude to money. Money is not an evil or a bad thing. In fact money is wonderful! Money enables you to have a roof over your head, to feed your family and pets, to keep you and your family healthy, and to wear the clothes that help you tell the world who you are and what you're about. Money buys education opportunities, cultural experiences, and money enables you to help others in need. Think positively about your money. You certainly wouldn't think money was bad if you were giving it to Katrina victims or the parents of a child with a debilitating disease.

Once you're ready to approach your budget with a smile on your face, here are a few steps to get started:

Step 1. Find a pre-formatted budget worksheet. You can find these online. They generally include the basic expense categories like:
1 Home
2 Utilities
3 Food
5 Family
6 Medical
7 Transportation
8 Debt
9 Entertainment
10 Pets
11 Clothing
12 Miscellaneous
13 Investments and Savings
14 Donations

Step 2. Spend a few minutes reviewing the categories listed in your budget worksheet. Do they make sense for your lifestyle? What categories can you eliminate? What categories will you need to add? You can find this information by reviewing your credit card statements, checkbook register and your bank accounts for the past three months. Take a look at each category that is right for your lifestyle and add sub-categories. For example, under "Entertainment" you might have the following sub-categories:
1 Movies
2 Dancing
3 Books
4 Bowling

Step 3. Determine your income! If you receive a regular pay check, go ahead and calculate your monthly take home pay before taxes. You'll account for your taxes in your budget and this information will help you at year end when you're doing your taxes.

Step 4. Before you jump in and begin a budget, take a month or two to track your spending using the various categories you've already determined. This means keeping track of all your spending, keeping receipts and not letting any dollar go untracked. This is the most important aspect of starting a budget; you need to know how much you spend on everything. You need to know where your money goes. The point to this step is to gather information, not to limit your spending or spend less than you normally do. If you normally go out to dinner three times a week, don't all of a sudden go out to dinner just once a week simply because you're tracking it. Doing so will set you up for budget failure and we want you to succeed.

Step 5. After tracking your expenses for one to three months you're ready to set some goals. A budget won't do you any good if you don't have some financial goals. Do you want to save money for a vacation? Retirement? College fund? Financial goals are two part: how much time do you have to save the money and how much do you want to save?

Now you have absolutely all the information you need to create a budget. It is important to know that a budget isn't set in stone. If you find after a month or two that you're spending more on utilities than you expected but much less on food, then adjust your budget. The most successful budgets are budgets that reflect your life, are realistic and are easy to access. To keep an eye on your spending and make it easier to stick to your budget, keep your information in a location that is easy for you to access.