By budgeting expenses you are beginning to set up your defense against unintentional overspending.
This is the most time consuming part of developing your financial plan.
Recording what you spend each day, week, or month is not budgeting, it is record keeping. Having these records will save you time.
If you do not currently have records of how much you spend each month, start keeping track now using the free budgeting worksheet.
Once you have three months of data you will be ready to make your best budgeting decisions.
When Budgeting expenses you are deciding how much you will need to spend per month on each category and then doing your best to limit your spending to that amount or less each month.
Not every item that is budgeted to be paid from your income each month is an expense (i.e. money you put in savings each payday or contribute to your retirement accounts), but such outflows must still be considered when planning how much money you have available to meet your expenses.
Those deposits to savings, while not expenses, are outflows from the money you receive as an inflow or income each month. You may be thinking this way too complicated so let's simplify the process.
Begin by breaking your expenses into two sections:
Now, begin with your fixed expenses. Why?
Using real, as in not made up, numbers is very important. If you are guessing the amounts or pretending they are lower than they are, you are wasting your time.
The point is to know what expenses and outflows are going out the door.
Budgeting expenses practice and exercise:
1. Begin with your fixed expenses.
2. Make categories for fixed and variable expenses.
3. Do not make too many categories. Keep it simple and combine like expenses.
4. Write down the amount you paid out for each category.
Right now you are just gathering information. You will be using the information for your budget later.