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5. Personal finance basics – hands on, how to make a budget

My fourth, and previous lesson, touched on the ideas and reasoning behind building a budget, this lesson will actually focus on helping you make one.

You’ve got several options when it comes to creating a budget, either you can make it as simple as writing out on paper all of your weekly, bi-monthly, or monthly expenditures and on the other side your income, or you can use free or paid software to help assist you. I’ve wrote an entire article dedicated to discussing the various free budgeting programs out there for your use, check it out when you’re done with this article if it interests you.

In reality, building a budget should be simple, and so I will keep my lesson simple. You can build budgets for any purpose, a vacation budget, a weekly budget to help meet your monthly budget, a Christmas budget, and so on.

For the purpose of this article, we will start by creating a monthly budget, if you feel the need to later add a weekly budget, to help ensure you meet your monthly budget – then great.

The idea in building a monthly budget is to list out your income for the month in one column and then every last expense you will have in another column. Income less expenses equals your money left over or that you’re going to be short in paying your bills. It’s pretty freaking simple.

If when you’re done creating your budget you owe more than you’re taking in, you need to figure out what you can get rid of to get you to the point where you’re saving a minimum of 10% of your take home pay.

Once you figure out that you can’t spend more than you take in, and cut out your frivolous spending, you will be much happier.

You’ve got different expenses, sometimes referred to as variable or fixed expenses. Your variable expenses are those that vary from month to month, or those that you can directly affect by getting rid of, like cell phones, cable, food, and so on. Your fixed expenses don’t change, like your rent or mortgage payment. The easiest expenses to attack when reducing your budget would be your variable expenses obviously, but if things are bad enough, you might want to consider changing your fixed expenses.

When creating a budget, you need to be serious with yourself, by this I mean don’t lie about what is truly a necessity if you’re not meeting a 10% saving goal each month. Many frugal people would argue 10% is hardly saving at all, as they save between 10-50% of their take home pay. Maybe a portion of your budget should be dedicated to strictly paying down debt, while not incurring more. Consider cutting your entertainment expenses down and visit free attractions for a while. At the same time, don’t build a budget that’s unrealistic and you know that you can’t stand by, it would be a waste of your time.