How to make a Budget

Working with a budget is the best way to manage your money. But few know how to make a budget, much less work with one. We'll show you how.

The key to how to make a budget is to understand what outcome you are looking for. So here is what it is: Primarily, you are looking for places to reduce spending so you can reallocate those funds to another goal.

List your expenses. Use the Family Budget Worksheet (currently under construction) and list all of your expenses. Try to break everything down to a one week cost. If you receive most bills on a monthly basis, break the average cost down to what it is a week. The spreadsheet will do the math for two weeks, one month and a year.

Compare your income to your outgoings. Get a sense of the situation. The expenses may need to be cut. The income may need to go up (do you get a second job?).

There are three kinds of money you need, so you will need 3 different accounts. If you don't want to open new accounts, and you have the discipline, you can use envelopes instead of accounts. This is how it works.

The must have money is for housing, food, electricity, health care, transport, clothing basics. That money gets separated out first and goes into an envelope or a special account. This should be an easy access account using checking, internet or ATM card to pay your bills. This account will go up and down. Do not borrow or spend the leftovers as they will be needed with the next big bill.

The should have money is the savings you will build up by taking at least 10% of your money and putting it out of reach in an online savings account. This is important because with this kind of account, you will pay no bank fees, will get high interest, and you will still have access to your money if you need it. Why is this the second priority? Because you should think of it as 'paying you'. This is money for your future, for the things you really want. Pay you like you pay your landlord or insurance. It's just as important.

Finally, the fooling around money. This is what is left for coffee on the way to work, buying lunch, purchasing a pair of shoes you really don't need, or going out on the town. This can be spent right down to nothing between paydays. Doesn't matter!

Once you know how to make a budget and work with it, this will happen:

You will feel great with all of your big bills already covered each week. No grim surprises.

Initially you will miss the 10% you pay yourself, but that will pass quickly, generally within a couple of weeks. You will be suprised at how quickly it adds up once you learn to leave it alone.

You won't miss a reduction in your fooling around money if you see it building up in your savings account for the big ticket item you really want.

How do you make a budget? You be smart and save for the meaningful stuff while getting rid of the silly spending.

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