Budgeting Basics for Beginners

How to Set Up a Budget For Effective Savings and Spending

Jun 16, 2009

Through boom or bust, learning to budget is just as important today to keep the family finances stable as it was in the old days before credit cards. Some rules apply.

Budgeting is not something everyone does regularly or likes to do. In a prosperous economy few people ever think of the need to balance the books and watch where every dollar goes. Yet budgeting is necessary no matter what state the economy is in.

Most people have simply forgotten or have never learned to budget their time and money for maximum effectiveness and profit. The rules to handling money wisely have not changed since the dawn of man, but following a few rules can mean the difference between financial ruin and survival through hard times.

List the Monthly Expenses

Many people spend far more than they should and buy what they don't need. Without knowing where money goes, it's difficult to make any plans for saving it. The first step is to create a list of all those expenses that include what is spent for both necessities and the luxuries. Everything from insurance and taxes to video rentals should be placed on the list as well as the payments on credit cards. Those morning purchases of coffee and the newspaper are often forgotten but can add up at the end of a year.

List all Income

Monthly salary, investments and residual incomes should all be listed. Without this information no budget can be drawn up that works. Everyone's needs are different and budgets must reflect those needs.

Compare Expenses to Income

It's tedious work but subtracting expenses from income helps many realize how much more is spent than is earned. The reality of the figures on paper are sobering and clearly show the reason why few people ever get ahead financially.

Balancing the Books

It's a hard fact that the majority of people have to take some measures to equalize the income to expense ratio. The first step is to cut out those things that can be eliminated without affecting the standard of living. Eating out is often one area that can save a good deal of money, money that can be transferred to the food budget to buy food and prepare it for nutritious meals at home. The expense of movies, buying video games and the latest clothing fashions are all areas where money can be saved. If the budget can't be balanced after cutting back on unnecessary expenses, it may be necessary to sell what's not needed or take an additional job.

Build in Some Investments

The first priority is to get into the situation where income exceeds expenses. Once that is achieved, it's time to build in some investments. The urge to immediately spend any surplus is tempting, but will not help toward building equity for the future. Extra money should be divided four ways:

Staying Within the Budget

It's not as easy as it sounds. In today's consumer society there's plenty of advertising and methods used to tempt increased spending. The hardest part is to ignore those discount and pay-later offers. It takes a great deal of self-discipline to say no. Sticking to a budget always requires some sacrifice, but pays off in the long term.

Perform A Monthly Review

No budget is ever perfect. If the sacrifices are too severe, some areas of the budget can be relaxed. Changes will always be necessary as events always change. A raise in pay, an inheritance or a sudden windfall require a budget review before any money is spent.

These seven points will help create the best budget possible that meets all the basic needs of the family, provides a safe and secure financial future and allows for the enjoyment of all the good things life has to offer.

The copyright of the article Budgeting Basics for Beginners in Personal Budget Creation is owned by Mario Carini. Permission to republish Budgeting Basics for Beginners in print or online must be granted by the author in writing.