How to Budget in 5 Simple Steps
Assess the SituationThe first thing you need to do is get a grip on your current situation. Budgets are long-term documents, if you're starting to budget because things are going poorly for you monetarily, don't expect them to turn around overnight. Make a budget for yourself because you want to live within your means in the future, not because you're in dire straights right now.
Take a look at what you're spending every month.
Identify Needs vs WantsUsing the information from the previous step, look through your spending and identify what you're putting your money towards. Try to think in terms of needs vs wants. Your new budget should favor the needs, but not ignore the wants entirely.
Make a list of your needs vs your wants, and try to cut out anything unnecessary. If you're eating out 4 times a week, and you can't afford it, you need to cross it off of the list. In fact, you need to cross off everything you can and still maintain a quality of life that you're happy with. Be direct and eliminate all of the wants that you can without depriving yourself too much. We can come back to this step later if the money doesn't work out how you need it to. For now, cross off everything that you can do without.
Understand Your BehaviorThis step is vital toward having a budget that you can stick with. At this point, you should have a piece of paper with your needs and wants clearly categorized, and everything you can do without crossed off of the list. Now, spend some time thinking about what is left and why. You know yourself and your spending habits better than anyone else. Be honest with yourself about whether or not you can live without everything you crossed off.
Spending behavior can be changed over time, but the key is 'over time'. It's very hard to make a budget that eliminates all of your discretionary spending at once. It's a sure recipe for failure. Look at your spending habits and make small changes. Revise your list and move on to the next step.
Write a BudgetOnly after you've spent some time looking over your list and identifying which spending habits you're capable of changing should you write an actual budget. Take note of the cost of everything on your list, along with projected income, and run the numbers. Do you have a surplus or are you still in the red? If you're falling short, move on to the next step.
Revise Your BudgetIf you're having problems coming up with a budget that makes sense on your first run, go back to step 2 and start again. You'll have to make an honest accounting with yourself, but if you do it properly you should be able to come out ahead. If you absolutely can't, then it's time to look into ways to increase your income. At the end of the day, you have to be able to balance the numbers if you're going to stick to your new budget.
By Aaron Phillips