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Budget Planning: Your Guide to a Successful Budget in 3 Easy Steps

Updated on August 23, 2013

Teaching your teen how to create a budget

One of the conversations you need to have with your teen, before they leave home, is the talk about money. There are many helpful online tools to assist you in teaching your child to be financially responsible, and the earlier they start the better they will have an applicable understanding. Here are three key questions they should have the answer to:

What is a budget? Young people may ask themselves this question when they are living on their own. However, long before a teen leaves the home a parent should be instrumental in instilling a strong financial foundation, including teaching a child what a budget is and why it is important.

While this may seem to be a daunting task, you are doing your young person a loving service by encouraging them to put basic budget skills into practice while leaning on you for support. Let them know that this is a tool that they will carry with them throughout their lives, which will help them succeed at a greater level as they apply these steps. With your guideline and role model your son or daughter will be way ahead of the game when striking out on their own.

Why make a budget? For successful financial management a budget is a necessary tool.

What will I need? Each person will have an individualized budget. What works for one may not work for another. Since a budget is based on a person’s income and output it is imperative to gather as many accurate facts about your financial situation as possible before getting started. Now is not the time to covertly hide the facts of what your expenditures are. Clarity is the goal.

How to plan a budget in 5 easy steps

Here is a list of what you will need for planning your budget:

1. a list of all expenditures; a list of all income including paychecks and alimony/child support, social security or disability checks, pension checks, etc.

2. bank statements or other financial institution statements

3. a calculator

4. a notebook or journal, or a worksheet taken off of the internet, and

5. receipts giving an accurate view of your spending.


How much time will it take to set up a budget?

The initial budget set up may take longer, but once you have your plan in place your budget re-evaluation should take approximately 30-60 minutes. Part of your monthly viewing is making sure you are staying within your budget and adjusting your plan as you go. Budgets are not written in stone. They are flexible, flowing and dynamic tools for you to function effectively in your world.



Explaining income and expenditures in 3 Easy Steps

Step 1- Using a notebook divide the paper into two columns. On the left side of the paper list your income. Be sure to include any payments you receive from other sources beside your paycheck, such as alimony, child support, or rentals. On the right side list all of your expenses.

Note: There are two types of expenses, fixed and variable. Fixed expenses are anything that you can count on being the same each month. This would include rent payment, (or a fixed mortgage), car insurance, membership fees, etc. A variable expense is one that has a flexible status: groceries, utilities, gasoline, etc.

You can either list the fixed expenses at the top of the list or place an ‘F’ next to each fixed item and a ‘V’ for variable next to each fluctuating expense.

Step 2 - Add up the expenses in the column on the right and compare to the added income in the left hand column.

Step 3- If the income column is greater than the expenditure column, you are ‘in the black’, and that is a good thing. That means you have broken even or perhaps have some money left over that can be used toward an emergency fund, or other financial goal.

However, if your balance sheet notes that your expenditures are greater than your income, that is known as being in the ‘red’ and you will have to adjust your budget to accommodate for the difference until it balances out.

The good thing in writing it all out is seeing it in black and white. You then have the opportunity to trim money off of the variable expenses like cable television; a hobby you may be doing; even your gasoline or grocery budget can be tweaked to accommodate the deficit.

Additional budget tips to teach:

Continue to utilize the notebook to record your payments to your debtors every month. Sometimes it is good practice to visualize and manually scribe your finances each month for clarity. Also, get in the habit of sitting down at a designated place in your home that is quiet and without distractions. Use this space for bill payments and follow this pattern every week until it becomes routine. It helps to have stamps, envelopes and addresses to send off your bills if you do not have an online bill payment system.

Remember-a good budget works for you and is not a punishment. It is a guide to allow you to make positive, smart decisions about where you choose your money to be spent. Financial freedom includes sound financial management; and sound financial management follows an effective budget.

Comments

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    • Denise Handlon profile imageAUTHOR

      Denise Handlon 

      4 years ago from North Carolina

      Thank you for stopping by and leaving your comment, Irfan Faruqul. I'm glad you found it helpful and perhaps useful to try to follow the steps.

    • profile image

      Irfan Faruqui 

      4 years ago

      very nice !!!

    • Denise Handlon profile imageAUTHOR

      Denise Handlon 

      6 years ago from North Carolina

      Hi-thanks Barry, I appreciate you reading and commenting.

    • barryrutherford profile image

      Barry Rutherford 

      6 years ago from Queensland Australia

      Very Useful tips here !

    • Denise Handlon profile imageAUTHOR

      Denise Handlon 

      6 years ago from North Carolina

      Thanks for visiting and commenting. I agree. Being in Black beats being in Red in today's economy.

    • umakeit profile image

      umakeit 

      6 years ago

      It is good to have budget for our spending. It is important to know where our money goes and make sure that we are all the times in black. Thanks for sharing.

    • Denise Handlon profile imageAUTHOR

      Denise Handlon 

      6 years ago from North Carolina

      Thanks! Have a wonderful w/e. I have to work so I will visit your site more later. :)

    • ubanichijioke profile image

      Alexander Thandi Ubani 

      6 years ago from Lagos

      A great guide. Absolutely useful. I ve voted useful

    • Denise Handlon profile imageAUTHOR

      Denise Handlon 

      7 years ago from North Carolina

      Thanks Phil-I think that is wonderful that you will be teaching your son how to handle money at such an early age. I wish I had learned that so many years ago.

    • Phil Plasma profile image

      Phil Plasma 

      7 years ago from Montreal, Quebec

      We have a budget spreadsheet that we keep up to date quite regularly that is suiting us very well. My oldest child is only nine years old, but soon we figure to start showing him how we handle our finances so that we can be an example for him. You've got some great tips, here, though, earning you both a vote-up and a useful.

    • Denise Handlon profile imageAUTHOR

      Denise Handlon 

      7 years ago from North Carolina

      Thanks Stephanie. Raising my 17 yo nephew now has really brought many of these topics to the forefront. Thanks for your feedback.

    • Stephanie Henkel profile image

      Stephanie Henkel 

      7 years ago from USA

      It's amazing how many people need these step-by-step instructions. These are excellent guidelines for setting up a budget. Good Hub, Denise!

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