| Budgeting!That's right, budgeting is fun and exciting! No, really, it sounds ridiculous, but it's really quite satisfying. The purpose of budgeting is twofold: to understand where your money is going and to redirect your money from places you feel it's going too much to places you would rather it be. In order to make a realistic budget, you have to figure out exactly what your income and expenses are, and you have to find out what you normally spend per budget period (usually one month).
Creating a Monthly Spending Record
The best way to go about this is simply to track what you earn and spend in one month—every penny—that means for income, you include your paycheck, your birthday money from grandma, the $30 you made selling your old skateboard on craigslist, etc., and for expenses, you include everything from your rent to that 89 cent candy bar you really shouldn't have eaten. Carry a notepad with you and jot down everything you spend, separating the expenses into categories such as Health, Food, Transportation, Personal, Gifts, Pets, etc. If you give to any charities, make sure to include your contributions in your spending record. (It's also good to keep your receipt of other written proof of contributions, as almost all charitable contributions (even giving clothes to Goodwill) is tax-deductible.) It may be easiest to charge as many day-to-day purchases as you can to your credit card; that way your statement will keep track of your purchases for you and you'll only have to write down when you spend cash. If you do use a credit card, make sure you include all
those transactions. At the end of the month, use your paper statement or go online; most
of the time you can check them almost up to the minute online. Then, add up the total you spent in each category, and add up those totals to get your grand total. You may be surprised to find out where all your money is actually going. It can be a real eye-opener to your spending habits.
If you feel your spending habits are somewhat irregular month-to-month, you can even do this for a few months to find an average. Or, for "variable expenses" (things like tuition, income tax, vet bills, etc. that you only pay once a year or so), figure out what you pay in a year and divide it by twelve. Use that number in your monthly spending record.
Now, take your monthly expenses grand total and subtract it from your monthly income grand total; this is your monthly net. Essentially, your monthly net is what you gain (or save) each month. If you have a savings goal, perhaps you're working towards a car or a down-payment on a house, use your monthly net to determine how much you can safely set aside (save) towards your goal. Transfer this amount every month to your savings account and watch it grow! Don't forget to leave a buffer of a few hundred dollars or so in your checking (or other transaction) account for unexpected expenses. Or, you can choose to put part of your net into your savings and the rest into an investment account so your money has the potential to grow faster.
Turning a Spending Record into a Budget
Once you know where you're spending your money, you can determine where you want to spend your money and set your budget to reflect that. Budgeting is a great way to systematically save money in areas where your spending is going overboard. For instance, if you find you're spending $80 on clothes a month, and you think you can do better, cut your clothing allowance to say, $60. (It's best to work down gradually, girls; it's less traumatic that way.)
Samples and Worksheets
Here are some sample budgets and a blank budget worksheets. Of course, you should customize the categories to fit your needs. No use having a Pet category if all you've got is dust bunnies.
Official ToBP Excel budget spreadsheet!
Day-to-day expense ledger for tracking your spending (printable PDF)
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