1. Money

Budgeting 101

Set Up Your Budget


In January your weekend challenges are going to center on budgeting. 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. So your first challenge this week is to write down a few financial goals you want to achieve in the next year.

1. Choosing Good Financial Goals

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.

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