In reality, a budget is nothing more than telling your money where to go. I have heard Dave Ramsey take the definition a humorous step further – a budget is nothing more than telling your money where to go instead of wondering where it went!
So our first step in budgeting is:
STEP ONE Understand that budgeting is nothing more than "telling your money where to go"
Step One is the largest hurdle of any part of budgeting. The rest of budgeting is a breeze once you understand what a true budget is. Once you have internalized Step One, it is time for Step Two.
STEP TWO Determine the income (take-home pay) you will receive during the NEXT month.
There is a very key word in Step Two – the word "NEXT". I have learned that preparing a budget for money that has already been spent is not very fruitful. It is like being a Monday-morning quarterback for your finances. You want to get that money back. You wish you could have that money back. But it is GONE!
The budget must be completed BEFORE the month begins and BEFORE the money ever arrives. You are developing a spending plan for your money BEFORE you ever get it. The only way I have found to stop saying "I can't believe I spent my money that way" and "I wish I could have that money back" is to develop a spending plan BEFORE the money was paid to me for the month.
So think about it. What income will you receive during the next month?
Here are some common ways that people receive money during the month.
- Side Job Income
- Child Support
Whatever your source of income is, write it down. In fact, write it down and put the dates that you will be paid this money during the next month. If your income is unpredictable, write down the amount of money that you can count on.
If you have at least one month's worth of expenses in the bank, download the Monthly Budget Form (Excel).
Because you have at least one month's worth of expenses in the bank, you can sum up your total income and enter the total income in the Income section at the top of the budget form.
If you are living paycheck-to-paycheck, download the Weekly Budget Form (Excel).
Because you cannot pay all of your bills at the start of the month, you will need to develop a budget for each individual paycheck. Make the dates at the top of the budget form match up to your income dates and enter the income in the Income section at the top of the budget form.
The series continues … tomorrow.