Smart Spending

Take Control of Your Spending By Writing Out a Budget

Figuring out how much money is earned each month as compared to how much is spent sounds like an easy task.  But in order to make sure money is not being wasted it should be tracked very specifically.  Using a budget map or guide will let the budgeter have a written plan to follow.  It can be a visual reminder to stick to the budget, and it will help keep them on track much more easily than just having a general idea of how much they have spent.

There are a great number of spreadsheets ready to be downloaded (10 different spreadsheets here).  The key is to keep them to one page, this way it does not become a chore flipping back and forth trying to add up the totals.  A good budget will show all incomes and their sources, as well as categorizing the expenses.  The categories should then fall into two different columns.  One column will be for required expenses such as housing, food, etc.  The other column will be for discretionary expenses, such as vacations, eating out, and other purchases that are not necessary for survival.   Thus your final budget should be broken down to three columns: Income, fixed expenses, and discretionary expenses.

By writing out a budget, you will be able to do two things.  The first will give you a sense of peace that you know exactly where every dollar is going.  The second will give you a sense of hope knowing that the discretionary spending column is most likely larger than you realized, so you can cut back on some of those expenses.  The final printed budget will be a reminder that you want to meet your goal (save more, invest for retirement, or whatever you have planned), by keeping and maintaining the budget sheet, you will sooner meet that goal.

Getting the budget in place and understanding where money needs to be spent, where it can be spent, and where one must cut back is the foundation.  Staying on track and not spending frivolously can be a whole new challenge.  Going from spending without regard to where the money has gone, to carefully tracking every expense can be managed with some simple tricks.  In the beginning many people simply rely on their willpower to keep themselves from spending money.  This usually lasts about a day.  After that they need to rely on other techniques, such as leaving the credit cards at home when they go out and only carrying a set amount of cash.  This technique is highly effective, and personal finance guru Dave Ramsey takes it a step further with his envelope system.

It can be hard to stick with a budget at first.  But as tracking income and expenses becomes more of a habit rather than a chore, it will get easier.  After the budget has been created, there should be money “left over” at the end of each month.  This does not mean extra money to spend.  In our next budgeting article we will talk about saving, investing, and automating expenses.