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Creating a budget

Updated on July 6, 2015

Budgets

Governments have budgets, companies have budgets, why don't you have a budget? Learn what a budget is and why it is important to have one. Find out how you can go about putting one in place and what tools you can use to make it a simpler process..

What is a budget?

Essentially a budget is a plan on how to spend money. You start off with your available cash (this is more than likely going to be your salary, but add in any other income sources) and divide that money up between spending categories. For instance, if you take home $1000 per month at your job and have no other income, then you have $1000 in available cash every month. Then you may say that every month you will spend $500 on housing, $150 on transportation, $150 on food, $100 on savings and $100 for misc/emergency. That is a budget.

Tracking your spending

Before you create your budget, it may be a good idea to track your expenses for a couple of months. This will give you a good idea of how you are spending currently, which if you do not track your expenses, you probably don't have a very accurate idea of where your money goes.

You can do this a couple of different ways. You can sign up with sites like Mint.com and they will automatically pull data from your bank/credit cards and displays it all for you on their website (Quicken will also do this in their software). They will then take all the transactions and categorize them. You can also just manually enter in any transactions into Quicken or an excel spreadsheet. This is obviously going to be more work, but you can get a little bit more accurate result.

Planning for the future

Now you need to figure out how you want to spend your money. There is no right or wrong way to do this; you just need to figure out what is important to you. One person may want to live in a big house and cook their own dinners, while another may want a more modest home but want to eat out at nice restaurants often. You only need to make sure the amounts are realistic and add up to no more than your income.

Putting it all together

At this point you know where you are and where you want to be. All you have to move around some of the pieces. First you will want to find the things you spend money on that you wouldn’t mind giving up. For instance, does the $5 coffee from Starbucks taste that much better than the one you brew at home? After that, you may have to start looking at what you don’t really want to give up, but could live without. It is all going to depend on your personal situation.

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