Budget Plan – How To Create A Budget In 4 Simple Steps – Part 1 of 2

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Please read the disclaimer before you continue. pie-chart1

Budgets don’t work. What? Then why the heck am I writing a post on how to create a budget? Budgets don’t work for the same reason diets, or new years resolutions don’t work. They appear to be too restrictive, oh yeah, and were lazy. We are inherently lazy and we like things to be easy rather than difficult, this includes me. I myself don’t like to use the “B” word, I prefer to call it “a guideline for money so that you don’t have to be a greeter at a department store during your retirement”. I’ll give some personal finance help and show you how to create a working guideline in 4 simple steps

Let’s be serious, if you want to go forward with your finances, you’re going to need some kind of guideline or general plan. If you don’t want to go forward, you would not be on this blog. So I am going to assume that you would like to move forward, or at least gain some knowledge or insights.

Most people think they have a problem with debt. However, if you were to look at the actual problem it’s not debt, but rather how money is managed. A lot of people seem to have a problem with how to manage personal finance. If you don’t want to go into debt, don’t spend more than you make. The purpose of a budget is to achieve this. Here is a simple 4-step program that you can use to understand where your money goes, as well as where you should allocate it: (I am sorry, you will actually need to do a little work).

Find out if you are spending more than you make. You can do this by getting your own free bduget spreadsheet. It is really easy, just fill in the green spaces and the rest will add up for you. It is found in the “how to manage money” tool kit. (You will need a spreadsheet program to open it).
Compare your numbers to the spending guideline pie chart. (Also found in the free “how to manage money” tool kit.
Make the adjustments necessary to bring your numbers as close to the pie chart as possible.
Review and update the income statement sheet at least every quarter. I update mine monthly and print out the sheet and put it into a binder.

The hardest part of this process will be completing it for the first time. You probably won’t have all your numbers and you will most likely need to do some digging. However, once you get the income statement sheet filled out once, it will be very easy to update after that. It takes me about thirty minutes a month to work through mine. You might also have a difficult time with step 3. I will cover tips and strategies in later posts to help you with all of the changes you will need to make.

Don’t worry; money is actually very easy to understand once you know where you are. It’s just a matter of personal finance basics. Think of it this way, if you wanted to drive to a faraway destination, the first thing you will need to know is where you are. Once you know where you are, it is quite easy to get directions to where you want to go. The income statement is your starting point, without it you would be just randomly driving and you would likely never get to your chosen destination.

Part 2 of this series will cover the spending guideline pie chart which shows where you should allocate your money in a balanced budget.