If ‘budget’ sounds to be a scary word for you and it makes you cringe, here is a brief rundown on how to create a guilt-free budget. However, before you go ahead, the first thing that is very important for you is to change your perception – the way you think about budgeting. You should think of it as a two-part process where first you summarize how you spend your money and second, set certain guidelines and rules for spending. Don’t think of it as a financial dieting program.
Step I – Set Up Categories For Expenses
The first thing that you have to do is to set up categories for your income as well as expenses. However, while you do this, it is very important for you to make sure that you are not trying to fit your spending into some other categories. The basic categories may remain the same, but not all of them. The basic ones include food, insurance, utilities, and housing. But, besides them, there are several other expenses that are unique to every individual, based on his or her specific personal situation. Make sure that the categories you choose reflect the accurate picture. It should include everything, such as how much you spend on your habits (coffee, drinking, and smoking) and hobbies (gardening, crafts, and golf).
Step II – Do Your Math To Set The Budget Amounts
The next thing that you have to do is to find out your monthly income – as accurate as possible. If you are paid twice a month or on a weekly basis, add them to calculate the gross pay. In case you have irregular income – something that varies from one month to another, you should try to find out the average monthly income. While you do this, make sure that you consider all the sources of income, including commissions, bonuses, dividends, and other miscellaneous income. Now, this is the time to calculate the budget amount for each spending category based on the priority level – starting from the most important to the least important.
Step III - Record The Actual Amount You Spend
Do not forget to write down how much you actually spend and where. When you look back at the record at the end of the month, you may be shocked to see where your hard-earned money is actually going. It will help you find the small holes that can be blocked comfortably. You probably do not need that monthly magazine subscription or you should consider cutting down your premium cable bills.
Step IV –Introduce Adjustments Accordingly
The last thing that you have to do is to introduce certain adjustments in your budget, based on what you find in step III. The idea is to plug those small holes where your hard-earned cash is leaking out from.
Try this four-step process for a couple of months and you will get to understand your spending pattern. With every passing month, your budget as well as your finances will keep improving.