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Creating Personal Budgeting Habits

Budgeting 101 | Budgeting Tips

Creating personal budgeting habits has been central for our family in being able to take charge of our finances, spend less than we earn and ultimately help us build wealth. I want to show you how we budget our money so you can learn how easy it can be and how you can do it too.

At one point our idea of a budget was looking at our checking account to see if there was any money left...but many times we would discover that there was no money left and worst yet, we did not know where it went!

A single guy or gal can get away winging their monthly expenses, maybe a couple too but with a family there is no hiding from this. When you got to pay a mortgage, car payments, ballet lessons AND you want to also save and grow your money, just looking at your checking account won’t cut it.

Budgeting 101 - Why Budget

There are various reasons why you want to do this:

  • At the very basic a personal budget is THE way to make sure you don’t spend more than you make. Spending more than you make is probably one of the major reasons for the large amount of debt many families carry. From personal experience I know that some debt, specially credit card, sort of creeps up on you. All of a sudden you realize you owe this much and you really cannot remember where it came from. Using a budget is one way to prevent this and spend less overall.
  • Personal budgeting is a great tool for you to plan your spending and better yet to find money for saving and investing – so you can “pay yourself first”
  • With a budget you can identify bad spending habits, poor money decisions or just poor financial planning. The numbers don’t lie so when you add up everything and the result is in negative territory you got nowhere to hide (which might be why some people avoid doing it) Smiley Faces.
  • It allows you to keep in control of your credit card. I treat my credit card like a debit card and pay off the full balance every month. By budgeting every week I keep myself from using the credit card when I really don’t have the money to pay for it.
  • Contrary to what many people believe, a budget can actually give you more freedom by allowing you to spend freely because you know for a fact you have the money for it!

Budgeting Tips: Credit Cards can be a double-edge sword. If you have problems using credit cards responsibly I would suggest you stick to cash and debit cards. Only buy things on a credit card if you know you will pay it off when the bill comes. There's no need to have a slew of credit cards, one card with the Visa or MasterCard logo should be all you need.

The bottom line is that personal budgeting, regardless of income, is crucial if you want to ensure that you are keeping more and more of what you make. In turn the more you keep the more wealth you can build.

Budgeting 101 - How to Budget

Personal budgeting can take many shapes and there really is no one way. What you should strive for is to find the way that works for you. And usually that means one thing: KISS (keep it simple stupid…Smiley Faces)

A budget can be as simple as keeping record on a notebook or piece of paper on a 3 ring binder or using detailed budgeting software. I tried these and thought it was too time consuming so I looked for ways to achieve my objective - ensuring I don’t spend more than I make - in a faster way.

The personal budgeting method I use requires a spreadsheet software like Excel or Open Office, Calc (free). You will also need for your spending accounts (checking, credit card, etc.) to be downloadable into a .csv format (available online from many banks). This way you will not have to do manual entry and this will save you a bunch of time.

Then I follow these steps:

1. Download all checking and credit card transactions from my bank to Microsoft Money. Note: I choose to download into MS Money for better tracking and reporting but you can skip this and download straight into Excel as a .csv file. Most download capabilities allow this.

2. In Money (or in Excel) I categorize all transactions into my pre-determined categories. I keep my categories as broad as possible:

  • Bills (anything you get in the mail): gas, water, trash, mortgage, power, phone, car payments, insurance, etc.
  • Household expenses: groceries, gas, dining out, cash, miscellaneous, donations
  • Savings/Investing: savings, IRA, 401k
  • Income: salary, rental income, interest earned, other income

3. From Money I export the data as a .csv file to Excel (optional since you can download from your bank straight into Excel)and it looks like this:

personal budgeting

4. In Excel I add up the total dollar amount for the transactions in each category and fill in the boxes in my budgeting spreadsheet:

budgeting spreadsheet

5. The spreadsheet does the adding and subtracting for me and will tell me where I stand in relation to my monthly budget.

6. At the end of the month the “Available” box better say $0 or higher – no negatives!

That’s it…15 minutes, I promise!

So bear in mind that when I go through this process the very first “bill” that got paid was my deposit into my savings account, my deposit into my Roth IRA plus the money that gets deducted from my paycheck to go to my 401K. Then… I pay my bills and spend money on “stuff” with the money that is left over.

When doing personal budgeting I suggest you keep your categories brief and general. Yes, you can track how much you spent on clothing, in pet care, automobile repairs, children activities, video rentals, tax preparation and on and on... But unless you prefer to, don’t get bogged down into too much detail of where your money is going.

Focus on the bottom line: at the end of the month the final number ("available" box) has to show that you spent less than you made, regardless of where the money was spent.

Whether you choose this system or make your own the important thing is that you create a personal budgeting habit. Get control of your expenses and use it to find ways to create wealth on any income.

Click here to downlaod a working copy of my budgeting spreadsheet

For lots of budgeting resources read my follow up article on Budgeting 101.

You might also be interested in creating a spending plan along or instead of a budget

Check out 4 Smart Budgeting Tips For Families To Lead A Debt Free Life

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We have many things hitting us at once, we are glad we stumbled upon this 3 weeks ago. Recently married, no children, new mortgage. We want to set up …

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My husband and I work everyday to maintain an affordable budget. It is a very essential part of a relationship and important in maintaining a decent lifestyle …

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When you are creating a budget how do you decide how much to allocate to each category and how do you decide the categories you use? My husband and …

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