Key Word - Budgeting

One of the most key points of personal finance is budgeting. Because many people having been hearing and reading about budgeting and how to budget, it seems very common advice. But for as common as the subject is, it sure doesn't mean that people are taking such advice. One reason is because many people think that such an easy step is hardly capable of resolving financial problems. However, when it comes to debt, keeping it simple is exactly the way to go.

There are some individuals that will fight the concept of budgeting all the way, but those who are following the advice of experts have found that budgeting is exactly the advice they needed and since taking the steps to create and institute a budget into their daily lives, have realized how much more manageable finances have become.

Why People Don't Budget

Another reason people don't attempt to create a budget is because they make it too complicated and quickly lose faith and interest in the financial tool. They make up some insane charts or spreadsheets to track spending and catalog bill that even they can not follow from week to week. For simplicity, scrap the spreadsheets and buy a notebook from the dollar store next time you stop in. Keep the notebook handy so you can write down all the money you spend in a day. Buy a similar notebook for your spouse to keep track of spending. Write down all spending to the exact penny. It may take awhile to get into the habit of noting your money transactions but keep at it for a solid month. At the end of the month, go through each expense and put it into a category (groceries, junk food, entertainment). Add up the categories for a grand total of what you spent in the last month.

Creating A Workable Budget

Next, you need to gather all of your monthly bills and your paycheck stubs for the month. You will need to have some time to sort through and document all of the money you owe, who you owe it to, and how much you owe. Factor those numbers together for a grand total of your bills. You will then need to add up how much your income is each month. Take the total amount of monthly bills and subtract it from your income amount. What is left over will be your “excess” cash. Now, compare what is left over to how much you actually spend in a month during the tracking process. It is here that you will begin to see how much money you are spending each month that you may not have. It is time to make some cuts to your monthly expenses. Cut down or eliminate entertainment spending, convenience spending, and other items that are “wants” rather than “needs”.

It is that simple to make a budget. But it does require constant upkeep and modification month to month as your different financial needs continue to change. Budgeting is certainly a good money habit you can incorporate into your life and is definitely a necessary tool to managing your money.