Creating a Budget

I'll admit it: I have a weakness for books. And ice cream. I'm an impulse buyer, the kind who can go into a store "just to look around" and leave with a bag in each hand. It's only later that I connect my new goodies with my shrinking bank account, and later still that I realize my goodies could have been, say, food for the next week. If you've ever experienced the head-drooping, stomach-clenching feeling attached to that realization, you, like me, may be interested in a little activity called budgeting.

No, don't run away. A budget is not a ball and chain meant to chafe your legs and slow you down (that's called debt). Instead, think of a budget as a chisel you can use to escape from that particular hunk of iron. Budgeting can help you work toward any financial goals you have, whether you want a comfortable home or a new jacket. Its basic purpose is to help you stretch your financial muscles without overextending them. As long as you have some kind of income and some kind of expenses, you can make a budget of your very own.

There are more ways to make a budget than you'd think. If you enjoy the sensation of holding a pencil in your hand, you can make your budget with little more than notebook paper, though you can also use pre-made spreadsheets designed for the purpose. If you enjoy playing around with a computer mouse, there are all sorts of programs available through software and websites, some of which are both easy to use and free.

Whatever style suits you, the basic budget process is the same. First, decide whether you want your budget to cover a short time period or a long one (for example, bi-weekly, quarterly, or yearly). You may even choose to keep more than one budget so you can focus on both long-term and short-term goals.

Second, estimate the money you'll make (income) and the money you'll spend (expenses) during the time frame you've chosen. Try to make these figures as accurate as possible, but don't worry if your first few budgets doesn't match exactly with reality. Most people aren't aware of their spending habits if they don't already have some form of budget, so don't feel bad if you need to revise your budget a few times to make it workable.

Finally, divide your estimated income into categories of things you'll need to pay for during each cycle of your budget, using your estimated expenses as a guide. These categories usually include things like mortgage payments, gasoline, and groceries. Remember that while it's always best to have too much money set aside for necessities than not enough––banks and utility companies aren't terribly forgiving––the chances are you won't stick to your budget if you don't set aside at least a little money just for fun. Your budget should be a tool, not a prison.