Budgeting, or the 'B' word, is considered by some to be the hardest thing to do. It's an unpleasant and thankless task.

BUDGETING GIVES YOU PEACE OF MIND
I think that budgeting is actually a relief as it helps me define what I'm going to do with my income over a given time period. It gives me peace of mind to know where my money is going and what bills I can and cannot pay off.

Budgeting is actually quite a large topic when you look at it. It requires gathering up all of your regular bills and then thinking about future expenses that you may incur. You have to look into the future a little in order to anticipate future items that you may have to budget for.

START WITH FIXED HARD NUMBERS
The first thing to do is deal with the hard numbers. These are items that you know are going to happen each month.

Income	$3000
Rent or Mortgage	-$500
Electricity	-$100
Natural Gas	-$95
Water	-$45
Auto Payment	-$320
Student Loan	-$100
Bank Loan	-$135

NEXT PLAN FOR REGULAR VARIABLE COSTS
After these bills are paid, you're left with $1,705
The next thing to plan for are regular things that you buy but don't have a fixed amount.

Groceries	-$750 ($187.50 /week)
Clothes	-$300
Personal Care	-$75
Entertainment	-$150
Credit Card Payment	-$125

LEFT OVER DISCRETIONARY INCOME - REQUIRES GOALS AND PLANNING
This leaves with with an balance of $305 of left over or discretionary spending money. This means that you've got $305 that doesn't have to be spent on anything.

This is where your plans and goals come into place. This left over $305 should go into retirement planning, or vacation savings, contingency fund or whatever your goals lead you to.

DEVELOP A 5 YEAR GOAL - 60 MONTHS
It's important to decide where you want to be financially in 1 year, 3 years and 5 years based on how you use your discretionary income. Since you only have your discretionary money left, you simply multiply that amount x 12 months, 36 months etc.

You could even ask yourself questions like: "what happens if I save $50 over 12 months to start? How much would that give me in savings?" I used to do this for hours when I was just starting off. I remember that it amazed me that I would have $600 saved up after 12 months if I saved $50 per month. I then thought about how I would feel to have $600 cash in the account.

For example, if you saved the $305 for 60 months (5 years), you would have $18,300 not including interest calculated on the savings. If you are currently renting, this may be the down payment you've been looking for. If you value travelling over saving money, then this money could buy you your desired vacations.

It's important that you have a hard look at what your goals are. If you don't have any financial goals, more than likely you'll spend all your discretionary income and have nothing to show for your hard work after 5 years.

IT'S IMPORTANT TO DEVELOP A 3 MONTH CASH RESERVE
It's also important that you develop at least a 3 month reserve in the bank, if you haven't got this already. This is a cash reserve that will keep you safe in case you have a loss of income. I recommend that this be a higher priority than paying off your debts. What I mean by that is, make your minimum credit card payments, but save any discretionary income until you've got a 3 month reserve.

A 3 month cash reserve is defined as what you would need to cover your household expenses for a three month period.

As every body has different priorities and values, it is up to you to decide the best way to spend your money. The more you practice budgeting and looking at your finances the closer you'll get to achieving your goals.

I hope this gives you at least one good idea for budgeting. Let me know if you have any questions.

By Monty Loree - Financial Maturity blog - Topic - budgeting, making a budget, personal budget detail, personal finances.

Articles from October 2005
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