1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

Budgeting 101

Set Up Your Budget

By

Your budget is an important money management tool. It allows you to decide how to spend your money. It lets you track your actual spending and see if it matches your goals. A budget only works if you want it to. It helps to understand your budgeting style, so that you can put in an effective budgeting system. Before you get started, you may want to consider these five reasons for budgeting.

1. Choosing Good Financial Goals

piggy-bank-budget.jpg
Peter Dazeley/The Image Bank/Getty Images

The best goals will have both short-term and long-term steps. Often financial goals link to each other. For example if one goal is to get out of debt, the next logical goal after that is to begin to build wealth or to save for a home. Take the time this weekend to form your long term and short-term goals so you will have motivation to make your budget work.

This part of the plan should not take more than about thirty minutes. List your goals, and break them into smaller manageable steps. Your budget is the tool that you will use to reach these goals. In addition to goals such as getting out of debt and saving money or purchasing a home you may want to think about career goals as well.

2. Plan Your Basic Budget

Create a basic monthly budget this weekend. Gather your past receipts or records from your budgeting software and set up a realistic budget based on the average amount you have spent in each category over the last few months. This will be your starting budget, and we will tweak it over the next few weeks so it will become a more powerful tool.

Since this is a basic budget, it is best to start from how you spent money in the past. However, you do need to make sure that your expenses and income match. It is not uncommon for someone to realize he has been spending more than he makes when he first sits down to budget. Cut back this weekend so your income and expenses match, by cutting entertainment and other luxury items first.

You may need to find a way to raise your income temporarily if you have a lot of debt. You can take on a second job or you may consider getting a roommate to cover some of the living expenses. YOu may also want to sell some items to help you pay off your debts. You can change your current situation with careful planning and hard work.

It is also important to take into account seasonal expenses. When you budget for them as well, you will be able to stick to your budget throughout the year. Plan for things like vacations, holiday spending and back to school expenses now. 

3. Don't Forget to Follow Through

 Writing down your budget is just the first step. You need to make sure that you are actually following through. You can do this by finding an app that makes it easy to track your expenses. You need to be creative about limiting your spending. Remember don't give up if you fail to perfectly follow you budget the first time. Keep trying, and eventually, you will make it work.

©2014 About.com. All rights reserved.