How to Let the Numbers do the Talking – Budgets Part 1

Budgets are…important. Very, very important. As someone who relied on them heavily at work and just winged it on the home front, I can tell you that I could have done a lot more for our family if I took more time to create a budget and paid more attention to our spending. Don’t be me.

A budget can be used for your overall finances, specific projects, or special events. And, sometimes, budgets can be created within other budgets. Are you excited to delve into the world of planning your finances? Let’s go!

The Basics:

A budget is a plan, plain and simple. Don’t let the fact that it is a financial plan scare you. Budgets usually cover a specific period of time (a year is most common). A basic budget consists of revenues minus your expenses, and you end up with net cash flow.

Let’s break that down a bit. Revenues for your household consist of the income that comes in via your paycheck and/or other investments. Expenses are pretty self-explanatory but can include some items you have probably never considered, such as setting up a savings plan or a rainy day fund, and net cash flow is simply the amount of money that is left after you’ve paid all of your expenses. Wouldn’t a visual be helpful right about now? I agree:

Basic Sample Monthly Budget:

Income:                              $6,500

Expenses:

Home                                    $2,550

Vehicles                               $1,300

Food                                      $750

Household                         $550

Children                              $650

Student Loan                    $300

Savings                                 $150

Subtotal:                              $6,250

Net Cash Flow:                $250

(what you are left with)

The above is simplified, but it’s a good place to start for someone who is intimidated by this process. You can group expenses into as few or as many categories as you want. Also, each of the above categories can be broken down further, if you want to do an in-depth analysis. For example, the Home expense could include mortgage, insurance, real estate taxes, and an estimate for home repairs. Another example is food, which includes groceries, dining out, coffee, etc. As you can see, you can make your budget as detailed or simple as you like.

What’s the best way to actually sit down and start a budget? You’ve already got all of the info! Starting a budget is easy when you have something to rely on and, lucky for you, your spending over the past 12 months is exactly where you want to start. It’s a bit of work upfront, but you’ll be thankful for it in the end.

Fun fact – A lot of credit cards will analyze your spending for you! Take a look and you can get a feel for how you’re spending your money as a tool for building your budget.

What do you do once you’ve created your budget? Take a look