Personal Budgeting - Your Basic Playbook

A written personal budgeting plan is your basic playbook to successfully managing your money.

To put it another way, keeping as much of your income as possible is how you win.

Paying out all you earn to others, frankly, is how you lose.

Have you ever wondered why you don't have the money you think you should have at end of each month? Do you wonder where it went?

Here are three reasons to put a budget in writing:

Reason #1 - Keeping a written budget, tracking your monthly expenses, and comparing the two each month will answer those questions.

Reason #2 - When you put something in writing you are making a commitment - you are taking control.

Reason #3 - Once your plan is in writing you can review it, update it, and change it as your needs and goals change. A written budget is a tool.

Conceptually, personal budgeting is pretty simple and straight forward.

In its basic form, you list your income and expenses then subtract the expenses from the income which in a perfect world results in a positive number. Nothing to it!

In reality, most of us find budgeting tedious, frustrating, and time consuming because of the paperwork involved. So, to simplify the process, break it down into manageable parts. There are three things you need to know in order to develop your spending plan:

How much you expect to bring in (Step One).

Few people, except maybe Bill Gates (I'm guessing - I haven't actually met or spoken with him) don't know how much they make each month. Be sure to include only amounts you will actually make or are sure to receive.

This can difficult if you are work on a commission or are self employed (like me). If your income is sporadic you will need to use an average to determine your base.

Remember when managing money through personal budgeting you can only plan to spend what you know what you are bringing in the door. It is not what you hope to bring in from over-time or commissions that you may or may not make.

How much you spend (Steps Two and Three).

This is the time consuming piece. You can spend hours trying to determine these amounts. To save time go back at least three months to add up what you actually spent. Using three months is important because very often many of us have quarterly payments to make on items such as trash, water, etc.

You may get all fired up about personal budgeting and money management and decide to calculate how much you spent last year. If you do, be warned that you will probably get to about March or April and then quit because it's an overwhelming amount of work. Don't make this mistake. Three or four months will give you all the information you need to proceed.

Once you know how much you spend, you can decide whether or not you want to continue to spend your money within certain categories of expenses.

Since personal budgeting is personal you need to decide what is or is not important to you and your family. Each family is unique and needs will differ from family to family.

Keep this mind when developing categories.

How much you owe (Step Four).

Most of you know how much you owe.

If you don't, just stop making payments and everyone you owe will call you to let you know! (Just kidding…)

Not making payments toward debts is one of the worst mistakes you can make.

From a lender's point of view, once payments have stopped it's panic time. In many cases lending regulations require they take immediate action. Most lenders will try to work with you as long as they know what's going on.

Now that you have all the basic information, it is time to get started.

Budgeting practice and exercise:

  • Get out your pay stubs or income statements (such as bank statements if you have direct deposit) for last month and the three months prior.
  • Open this worksheet and gather your information.
  • Go to Step One, "how much you expect to bring in".
  • Remember to look for the rules in each section.

Basic Playbook Rules:

1. Earn more than you spend.

2. Limit debt.

3. Keep records and a written budget.

4. Be persistent, do not give up.

If you want to know how to create your own worksheet, you can learn how here.

Move on to Budgeting Income

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