The Importance of Budgeting
There are some who get on a kick about budgeting. They love spreadsheets full of all columns and numbers. They love scanning receipts and filing papers. They love comparison shopping to try to find the best deal on big-ticket items. They love making charts and graphs in Excel.
Then there are the rest of us.
We know that budgeting is one of those grown-up words that we should look into sometime. Maybe you even started a budget once, but couldn’t keep up with all your Starbuck’s receipts, so you quit before the month ended. Perhaps you couldn’t figure out how to get rid of all the hashtags that seemed to fill each cell of your spreadsheet, so you gave up.
Even though budgeting is not easy and may not be fun for you, it is time to be a grown up and start a budget. Here are tips on how to do it.
1. Keep track of your expenses for one month
Some experts say that the first thing you do to start a budget is to keep track of your expenses for one month. Don’t worry about categorizing the costs. Just write them all down on a simple spreadsheet that has three columns. Include the place you spent the money, the amount you paid, and what you purchased. Don’t forget to include automatic withdrawals that are made from your bank account like your gym membership and Netflix. Also, include your mortgage and utilities.
2. Categorize the expenses you tracked at the end of the month
On a fourth column of the spreadsheet, designate a category for each expenditure. To start, limit the number of groups in your spreadsheet. Examples of categories include housing, utilities, food, transportation, entertainment, clothing, and household expenses. Tip: to make it easier on you later, make sure the title for each category is formatted in the exact same way. This will make it easier to sort by each group in the next step of the budget.
3. Calculate how much money was spent in each category
Use Excel to complete this step. If you don’t know how to do this, there are plenty of tutorial videos online to walk you through the process.
4. Analyze the data
Figure out how much money you spent last month in total. Compare this with the amount of money you earned. Obviously, if you spent more than you made, that is a problem. If a person continues this type of spending, bad financial things happen. Credit card bills pile up, and you may experience car repossession.
Look at how much you spent in each category. Are you content with your expenditures? Chances are looking at the totals made you cringe. Determine the categories that you think you could reduce. Think about your plans. Do you want to save for a down payment for a house? Do you need to buy a new car? Are you saving for a big purchase?
5. Start a new spreadsheet based on the data you gathered from the previous month.
Make a plan on how much you are going to spend in each category. Add categories to your new spreadsheet that will help you reduce your debt or save for a large purchase. If you are married, make sure you both agree on the plan. Remember how to compromise, so each partner buys into the budget.
6. Track your expenses for the new month
If you use your debit card for most of your purchases, check with your bank to see if there is a budgeting tool built into their online banking app. This will make tracking your expenses in each category easy.
You may want to use an old spreadsheet for another month or two until you are disciplined enough to follow your budget. The act of writing down each expenditure and seeing the amount you are spending add up may be a deterrent to spending more.
7. Alter your spending based on your budget
As you approach the end of the month, pay particular attention to the total amount in each category. If you are close to passing the planned amount, stop spending.
8. Enjoy being an adult
Although budgeting is not a fun way to spend your time, you probably will enjoy reaping the fruits of your labor. Your debt may be disappearing. Your goal of purchasing a house may become a reality. You may be able to buy a car with cash or put more money away for your children’s college education or retirement. Enjoy!