Debt Free Christian

Setting Up a Budget

For many people, the thought of setting up a budget is daunting and even slightly scary. It is an unknown that will take time, energy and might possibly bring bad news.

But not having a budget is potentially deadly to your financial future. You cannot get ahead if you do not know where you are going and setting up a budget is like having a roadmap for your personal finances.

Setting up a budget does not have to be difficult or stressful. It does, however, require you to be honest in how you spend your money, be willing to make adjustments if necessary and have the desire to stick with the budget.

Although it is not difficult setting up a budget, the end result must be this - your expenses must be less than your income. Sounds simple, but for many of us, it is quite the opposite.

So, let us get to setting up a budget. First, you must know how much you spend on things. If you have not been writing down how you spend your money, start do to that now. Keep track of every single penny you spend, so that when you set up your final budget you are able to be accurate in setting spending limits for each category. See the article on Cash Flow Analysis for more information on tracking your expenditures.

Once you have a good idea of how much you spend in your various categories (which should happen after a month of recording expenses), begin to think about those categories. You will want budget categories for the obvious items like:

- Tithe

- Car payments and insurance

- Mortgage/rent

- Groceries

- Utilities

- Dining out

- Household maintenance

- Personal care

- Medical care

- Savings (include emergency funds, 401K and other savings categories here)

But you might also want to include additional categories as they fit your life. How many of these budget categories might work for you?

- Hobbies/crafts

- Classes/education

- Books/magazines

- Pet care

- Leisure travel

- Clothing/shoes

- Kids school expenses

- Entertainment (include things like sporting events, movies, etc.)

Once you know what categories you need in your budget, it is time for actually setting up a budget. Think about how much you spend in each category and set a monthly amount for spending in that category. As you set spending limits for each category, be sure to provide an amount that is realistic, but frugal enough for you to reach your budget goals. Do not be so frugal, however, that you immediately blow your budget the first week of the month.

After you set your spending categories, do last month's budget. Go back through your checkbook, your credit card receipts and use your spending log, if you have one. Make sure you account for all your expenses.

Once you have input information for the previous month's expenses, add up the income for last month and put that in your budget. Now add up all your expenses, and subtract that from your income. Do you have a positive number? If the number is negative, you are spending too much each month and now is the time to cut some budgetary fat before you set your real budget for this month.

Where can you trim expenses? How much did you spend on clothing, dining out and entertainment last month? Those areas are usually easiest to trim when setting up a budget. If you are only over by a small amount of money, cutting out one purchased meal each month might put you back in the black.

Only you can figure out what adjustments will help you come out ahead each month. For many people, dining out is a non-negotiable item. For others, it is an easy thing to cut. You must figure out what your personal priorities are, but be aware - there is a good chance you will have to cut something, somewhere.

Once you have set your budget, and you know how much you can spend in each category, set up your official budget for next month. You can buy a household record book at the store, or you can just use regular lined paper in a binder. Figure out a system that is going to work for you.

Once you begin using your budget, you might find that you become more aware of your spending than before. You might find creative ways to trim your expenses to save even more money. If you find that you are coming in below budget in some categories, take the excess money and transfer that to your savings account. Next month, reduce your budget so you can automatically apply more money to savings and less to the categories in which you naturally spend less. Over time, your savings accounts will grow and your monthly expenditures will decrease.

Many people resist setting up a budget for a variety of reasons. For many, however, the reason is clear: They see it as a budget jail that constricts how, when and where they spend money. It is important to look at a budget for what it is - a roadmap to financial freedom. Once you get that, setting up a budget and maintaining it will seem like second nature and will provide you with the vehicle for attaining your financial goals.