by Cyndi Li

Created on: May 24, 2008   Last Updated: June 09, 2008

The idea of creating a budget to better manage money has been around for years. The benefits of having one are numerous, but the main one is that, with a budget, it's easier to adjust your spending habits in the event the need arises, and still meet existing obligations.

For instance, if you were to purchase a new vehicle, you would have to be certain you were able to make the payments. With a written budget, you can add this expense into the formula, reevaluate what you bring in and what is going out, and adjust accordingly. Living on a budget isn't difficult; it just takes a little discipline.

What's a budget?

A financial budget is a weekly/monthly written account that summarizes the money you earn, the money you spend, and an ending balance after everything has been calculated.

How do I create one?

Using a finical tablet, a computer program or a simple notebook, make 3 different columns and label each one; income, weekly expenses and monthly expenses. Record any income you receive in the income column. Record all your weekly/monthly expenses in the appropriate column.

Weekly: gas, food, beverages bought on the run, laundry etcetera.

Monthly: Rent/mortgage, electric, phone (Including cell phone), cable, insurances, savings account contributions, hair cuts, clothing, etcetera. (Divide any annual expenses, like taxes and car registration costs, by 12 and record in the monthly column)

Include a line for entertainment as well; movies, dining out, museums etcetera.

Calculate the sum total of each column and record it at the bottom of each one. With any luck, your income column is greater than that of your expenses.

You now have a written account of what you earn and what you spend each week/month.

Is that all there is to it?

In a sense, yes; you have a budget. But the idea of a budget is work with it by adjusting it so you are better able to meet your monthly financial obligations. While you have the makings of a budget, this preliminary stage is only a written account of earnings and expenses. Next, review what you have recorded, and adjust it accordingly to meet those obligations.

When deciding what an obligation is, be sure to bear in mind the difference between a need and a want.

A need is something you require for good health, shelter, clothing or transportation. Food clothing, a home, and a car are all needs. But, be careful.

This does not mean you need to own the latest model, 4 wheel drive vehicle, wear designer clothing and eat take-out every night. Understanding the difference between your needs and wants is paramount to living within a budget.

Why should I have a budget?

By continually reviewing and adjusting this budget, you'll be more able to live within your means and avoid debt; or at least debt you can't afford.

There are numerous software products available to help you set up a budget, and keep a running account of your income verses expenses. Below are two of them. In addition to these there are arrays of books that offer budgeting advice. Visit your local book store or order on line.

Budget Tracker is a free software program you can download to your personal computer. Aside from tracking your monthly expenses, it also keeps a running average of them over time, and highlights your month with both the lowest and highest expenditures.
http://www.ducksoftware.com/budgettracker.html

Mint.c om is a free on-line budgeting site that tracks your expenses b y the day. It connects to 5,000+ financial institutions, and displays your every expenditure. Additionally, it offers an advanced alerting system which notes unusual account activities, low balances, and up coming bills.
http://www.mint.com/index.html

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