You’ll notice that this article is titled, “creating a manageable budget”. Creating a budget is simple in theory. All that someone needs to do is write down amounts of money that they intend to spend on certain amounts each month. The general idea is to spend equal to or less than the income. Therefore, the budget takes the amount of income and divides it proportionally into categories.
Based on that definition, this process sounds easy. All that is required is to assign amounts of money to various categories such as groceries, utilities, rent, and so on. All that is required to do this is basic math skills. The individual amounts only need to add up in whole to less than the total income for that month. However, the reason I specified the word manageable is simply because an effective budget is something that you can actually do. The purpose is not just to assign money to categories. The budget needs to assign money values that are realistic.
Many of us (especially married couples) have tried to allocate funds, but have found that it is not that easy. All too often we find ourselves spending more in one category than what was allotted. This makes managing money very difficult and a huge struggle. For people who are married, this can cause a lot of stress. Couples can find themselves disagreeing on how to set the budget initially. Then, at the end of the month, if the budget isn’t met, blame can be assigned to one person or another.
You can probably relate to these basic struggles especially if you have been married any amount of time. These struggles cause tension and many times arguments and fights for couples. Single folks will skip the arguments (unless you talk to yourself), but will surely experience stress and anxiety with an upside down budget.
How to Create a Realistic Budget
You are probably thinking at this point, that I have only told you what you already know. It is difficult to stick to a budget. So this leads into the natural question, “How do I create a realistic budget?” And as my good friend Pastor Mike would always say, “I’m glad you asked”
Identify what you are spending each month
This is ideally step number one. In order to create a realistic budget, we first need to know what we are actually spending each month. Depending upon our current bookkeeping talents, this can be easy, or very difficult. In order to do this, each expense in a particular month needs to be tracked. This means that you need to record every transaction you make and assign it to a category. This can be done a number of ways. Something on paper such as a ledger will work well. There are also computer programs and of course now cell phone apps that will allow you to track expenses.
At the end of the month, all the categories need to be totaled and this will give you a general idea of what you spend each month. You might be surprised either in a good way, or a bad way, or some combination of both. Some categories may fluctuate from month to month. If you wanted an even more accurate analysis, you could track for two to three months and take the average. This will just give you something more realistic with which to start your budget.
Do the Math
Now that you have your expenses in hand, you need to look at each amount you have totaled, and get a grand total. Then, you can compare your total expenses to your income. Pretty quickly, you will know if you are spending more or less than your income each month. Again, this may surprise you one way or another if you have never tracked your spending before. If you are spending less, then you are obviously in good shape. If you are spending more, then you have a problem. Either way, as a starter, you have a much better idea what your finances look like, and what you are dealing with.
Analyze the Expense Categories
This is important and will take some thought and prayer. You need to look at each category and ask if there is any way that you can spend less each month. The key of course is to make sure this is realistic. Some categories you will realize are flexible, and others are not. This step is optional if you are spending less than your income. It is required if you are spending more than your income each month. Living in this way long enough will of course create a lot of problems.
So as an example, if you have found that you are spending $200 more each month than your income, you need to find a way to reduce one or more of your categories by that amount or more. This might be easy to do if there is something obvious. But, if you are frugal to start with, this may take more work, or may require more income to balance the budget. These decisions though, need to be realistic.
Make sure that the amounts you are adjusting are actions that you can actually do. Saying that you will only spend $50 per month on groceries, probably isn’t realistic. If you don’t do this correctly, you will end up frustrated and possibly give up on budgeting all together.
Putting the Budget into Practice
Now that you have put together a budget based on your analysis of your actual spending and has been adjusted to fit within your income, you are ready to start executing. If you were tracking your expenses for one to three months, you will want to continue that practice now that you have a budget in place.
Remember that following a budget takes practice. It takes discipline and may be difficult in the beginning. You may find that you need to adjust the numbers based on your spending. That is normal. Budgets may need to be adjusted once per year, or every few months, or maybe once per month.
Also, some months have more expenses than others. As an example, Christmas time will likely require more spending than other months. The budget for this month might need to be higher than other months. However, you still need a budget going in to the month. If you don’t have a plan in place for your money, it is very easy to spend way more and end up frustrated at the end.
Staying Committed to the Budget
As each month goes on, budgeting and the implementation of that budget should become easier. Make sure to keep track of the spending and make changes where it is necessary. Having a good budget is the starting point to allowing you to create margin in your finances. This will allow you to pay off debt, if that is something you are dealing with in your finances. Sticking to a manageable budget will also allow you to save for an emergency first, and then for larger items down the road. All of this starts with a good budget, and then the discipline to stick with it.
The best time to start a budget is right now. If you haven’t done it before, this will at least give you something to consider and a place to start.