It's one thing to admit that you need a budget but it's quite another to actually write one down! It can be intmidating to organize financial information in a usable format. If you are trying to create a budget with someone else, there are decisions that need to be made about philosphy and structure. The truth? Setting up a budget is hard work! Make it a little easier by finding out what you need to know before you start writing.
1. WHAT TYPE OF BUDGET WILL YOU USE?
A
zero base budget begins and ends with a $0.00 balance. All income for a given pay period must be allocated and distributed to a spending category during that period. No money is carried over to the next pay (budget) period.
An
incremental budget uses the ending balance from the previous pay periods as the starting balance for the current pay period. With an
incremental budget, it is easier to spend more than you make because you have the "cushion" of money left from previous pay periods.
Incremental budgets are also more susceptible to fluctuations in pay because there is not a constant starting/ending point.
2. WHERE DOES YOUR MONEY COME FROM AND WHEN?
It's important to know what ALL your sources of income are. In addition to your paycheck (s), you need to know if you receive income from investments, savings accounts, etc. Equally as important as knowing where your money comes from is knowing WHEN you receive your money. Are you paid monthly or every 2 weeks? Do you receive interest and/or dividends monthly or quarterly? If you don't know for sure, you need to find out.
3. WHERE DOES YOUR MONEY GO NOW?
In order to be able to create a budget that addresses all of your financial needs, you need to know what those needs are. To do that, you have to know how you are currently spending your money. The best way to find out what you are using your money for is to track your spending...all of it. For 30-60 days before you write your budget, you need to record EVERYTHING you spend. If it helps, save ALL your receipts for that time period so you can refer to them later.
4. WHAT DEBT(S) DO YOU CURRENTLY OWE?
Your written budget should help you prioritize your expenses. Obviously, your debt payments will be a high priority. To budget for those payments, you need to have an accurate picture of what you owe and to whom. It will also be helpful for you to know what the payment schedule is for each of these debts (beginning of month, end of month, etc.).
Once you have the specific facts and figures of your finances, you need to spend a little time understanding how you think about your money. Before you start writing, think about your answers to these questions.
5. HOW DO YOU FEEL ABOUT MONEY?
Answering this question will require you to identify any specific experiences with money (good or bad) that have made an impression on your or that have influenced how you make decisions about money. Did you have positive experiences with money as you were growing up? Was your family open about money or was it something that was not discussed? Were you responsible for earning your own money or did you have money provided to you?
6. WHO CONTROLS YOUR MONEY?
Even if you are making your own money, you may not be actually controlling it. Are you writing (or at least monitoring) the checks in your house? Do you reconcile your checkbook regularly? Do you monitor automatic payments that you have set up to make sure they are carried out appropriately and on time? If you are NOT the person that is monitoring your money, do you know who is and are you confident that they are doing it correctly?
7. WHAT GOALS DO YOU HAVE FOR YOUR BUDGET?
If your written budget is to work appropriately, you need to know what it can and cannot do. Establish some goals for your budget so that you can make sure it actually does what you intend it to do. Will it help you control your spending? Is is just a tool to help you monitor your spending? Do you want it to establish a plan for you to save money?
A successful budget will be a great benefit to you if you will take the time to make sure that it is not just a bunch of numbers on a page. Before you start writing, make sure to find out what you need to know!
