What is Budgeting?

Budgeting is not as hard or horrible as you think. It's not going to make you live on rice and beans all the time and even with a budget, you can still have fun and enjoy life. In fact, you can probably enjoy life quite a bit more. Following a budget will open up doors to you financially that you never dreamed you'd have access to.

What exactly is budgeting? Budgeting is a way to make sure you are spending money where you should. It eliminates frivolous spending and helps you to take control of your money management. If you normally just pay your bills and spend where you please, you probably bump into a problem now and then such as you don’t have money when you need it. If not, you at least aren't living up to your financial potential.

We all have goals. Many of these require money such as buying a house or car, retiring, going to college, etc. If you are having trouble meeting these goals, a budget can help you get there and tell you if you can get there.

First, with a budget, you will figure out how much money you spend and how much money you make in a given month. The income is normally easy to figure out and will involve your salary, interest income, etc. The expenses will be a little trickier to figure out. You can probably easily write down your fixed expenses for the month such as rent or mortgage, cable, trash, etc., but you might have to record your spending religiously for a couple of weeks to figure out how much you spend on variable expenses such as food, entertainment, gas, etc. Try to get the best estimates possible and round up.

Subtract your expenses from your income. If you get a negative number, you are going into debt and that needs to be fixed. If you are breaking even, you are not going to reach your financial goals. No matter what the number is, if you haven't been budgeting, you can probably find easy ways to decrease your spending and increase your savings that you won't even notice when their gone.

Now you need to set up the budget. All you have to do is set up categories for all your fixed and variable expenses. For example, you will have rent or mortgage, water, electricity, gas, food, entertainment, eating out, snacks, clothes, etc. Include absolutely everything. You can then further adjust this to get the numbers you want to meet your goals.