How to Make a Sweet & Simple Budget!

According to Merrium-Webster's online dictionary, a budget is "a statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them b: a plan for the coordination of resources and expenditures c: the amount of money that is available for, required for, or assigned to a particular purpose".

That's a really long sentence to say that a budget is a list of all your incoming and outgoing money. The big question is why should you have a budget and exactly how complicated it is to make a budget. For me, understanding and completing a budget was simple. For my best friend, it was one of the hardest things she has ever done and I ended up sitting down with her and helping her figure it all out.

It surprises me how many adults have no idea what to do with a budget. I've heard so many people talk about how hard it is to make a budget or if they have a budget, how hard it is to keep to it. My philosophy is KEEP IT SIMPLE!!! I have read a few articles and even a few books on budgets and they always start off with telling you to keep tract of every dollar you spend for a week or month. Then they tell you that you need to understand how you spend to know how to make your budget. Some tell you that you have to cut back on all the pleasures in life and not spend a dime more than you absolutely have to. I'm not going to do that. Have you ever heard of KISS - Keep It Sweet & Simple? This is my version!

Guidelines of a Budget

There are a few basic steps of making a budget and a couple of intermediate ones. For anything more complicated I suggest finding an accountant as I have no knowledge beyond the basics.

Step 1: Make a list of all your bills

Do you have credit card bills, house payment or rent, car payment, car insurance, cell phone and house phone bills? How much gas do you use in a month? How much do you spend on food at the grocery store, at a restaurant, in fast food? Do you pay for internet or a gaming site? List anything and everything that you pay for every month. This is your monthly bills.

Example: My Monthly Budget

Rent - $635.00, Car Insurance - $90.00, Car Payment - $100.00, Cell Phone - $40.00, Internet/Cable/House Phone - $150.00, Gas - $100.00 ----- TOTAL: $1115.00

I'm luck in the fact that I have a roommate and she pays the electric, water, food (Food Stamps) and part of the rent. Also, I'm buying my truck from my brother, which makes my car payment really low. That being said my bills for the month total $1115.00.

Step 2: Make a list of all your income

How much money do you bring in a month? Do you have a job, food stamps? Make a list of every way you get money on a monthly basis. If it doesn't come in every month, don't list it.

Example: My Monthly Income

Paychecks: $1340

I bring home $1340 every month. This reflects my net pay (after taxes and deductions). Make sure you only use your net pay while making your budget or you will run out of money before getting all your bills paid.

Step 3: Retirement/Saving

In step one, I asked you to list all your outgoing expenses. When you made your list, did you think about your savings account and retirement? Even if you are 18 years old, it is never too early to think about your retirement plans. Saving just ten percent of your paycheck, can mean that you can retire on time and without having to have supplement income (another job). Also, in the immediate future, what happens if your car breaks down, do you have enough money to fix it?

Example: My Retirement/Savings

Savings: $50.00

For my retirement, my job has a 401K that I invest in. That money is taken out of my paycheck before my deductions, including my taxes. So, the $1340.00 you see above doesn't include my retirement plan. As for my savings, I put $50.00 a month into savings. It doesn't seem like a lot, but in one year, I have $600.00 enough to get a new tire or battery if necessary for my truck.

Step 4: Anything Else

Have you started thinking about a new hobby or want to have money for a current hobby? How about going to the movies or out to eat? There are a lot of little things that we like to do each month that add up to a lot of money. You can easily afford a few of these if you take them into account now. If you find you don't have enough money for all of them, then make a fun fund. This way you can pick and choose with the limits of your fun fund, which hobby/movie/dinner for that month.

Example: My Hobbies

Fun Fund: $25.00

I love to make chainmail jewelry. It's an obsession. I can walk into Michael's and spend $100.00 or more if I'm not paying attention. My fun fund is $25.00 a month. I only make it $25.00 because I know if I have any money left in my budget, I will be adding it to this fund first. Of course, by this time all my bills are paid and I have money to make it through the end of month. That money is mine to play with anyway.

You ask why make this fund in the first place. That's easy, that extra money may end up going to something else because something unexpected happened. This way you still have some fun in your life. That is part of being responsible. You have to think about your mental health as well as your monetary health.

Step 5: Mathematics (Adding and Subtracting Only)

Once you have all your expenses, savings, income figures out, now comes the mathematics. Add up everything that is income, then add up everything that is outgoing (including savings/retirement - it is outgoing because you don't have it available for this month's bills). This will give you a balance.

Example: My Math

Paychecks: $1340.00 - (Bills: $1115.00 + Savings: $50.00 + Fun Fund: $25.00) = $150.00

That leaves a balance of $150.00 for me to use however I want. If it is a good month and I don't have anything unexpected come up, I'll take it to Michael's or The Ring Lord (my chainmail ring wholesaler).

Last: The Hard Choices

If for some reason your balance is a negative number, you know you need to cut something down or out. Do you really need the mega cable package? Would drinking less beer each month cut down on your grocery bill? Do you really need to spend that much on your hobbies? Is having three MMORPG subscriptions really necessary or will just one due?

If you have cut your budget as much as possible, and you still have a negative balance, maybe a new job or second job is necessary. That is your decision to make.

So, it's really simple. Add up expenses, including saving, retirement and fun fund. Subtract that amount from how much you bring in each month. Positive number - Have Fun! Negative number -Cut Expenses!