blogs

I’ve written before that everyone needs to have a monthly budget. For many people, "budget" is a four-letter word. To me, nobody should live without one. Even Warren Buffett has to have a plan for what money he makes and where it goes. You don’t become rich without having a plan.

But just to say "everyone needs a budget" is not enough. I think most people know they should have a plan. They just struggle in coming up with one.

So let’s get a little more specific. First, it takes time to develop your monthly budget. Don’t expect it to be easy. It takes trial and error … and it can sometimes be very frustrating. The best way to begin is probably to track your spending for a month or two. Using online banking or just going through your checkbook, write down EVERYTHING you spend. That includes the $4.25 you spend at Starbucks.

This can be an eye-opening experience. I occasionally track our spending and am sometimes astonished at how much we spend at Target every month.

Once you’ve tracked your spending, it’s time to start budgeting. This is not always a fun experience. In fact, it’s a very limiting experience – because you begin setting limits for what you spend on certain things.

Here’s a quick, simple way to make your first budget (on one sheet of paper):

1. Write "MONTHLY INCOME" at the top of the page, then write down what money you bring in every month (include income from a job, alimony, child support, pension, etc.).

2. Under that, write down "MONTHLY EXPENSES." These are the things that you must pay every month – like mortgage/rent, utilities, food, transportation, debt payments, entertainment, etc.

3. At the bottom, write down "LEFT OVER." This is the amount you have to save or invest every month.

If you don’t have any money it the "LEFT OVER" category, or if you wind up in the red, you have two options: Increase your monthly income or reduce monthly expenses. THAT is where things get challenging. (Break out the calculator … you’re going to need it!)

One last note: There are many free budget forms available online – just Google "free household budget" and you get more than 2 million listings. There are also great budgeting tips online.

If you already have a budget, I think the beginning of summer is a great time to look at it and do necessary adjusting. If you don’t have one, it’s never too late to get started.