Let's go through a quick overview of how the budgeting process works before you begin your personal budget plan.
The importance of budgeting can't be stressed enough! Personal budgeting is a roadmap to financial success. Would you drive cross-country without a GPS (or Google maps)? Of course you wouldn't. So why would you spend your entire adult life without a plan for your personal finances?
You build wealth by spending less than you earn, saving and investing. Period.
So, in order to build wealth, you need to have a plan that lays out how much you earn, how much you spend, and how much you save and invest.
This plan is called...ready?...a budget. I know, I know...a dirty word.
Well, give it a different name. Call it your "wealth plan", your "millionaire roadmap", or whatever works for you. The fact is, unless you work with the reality of your incoming and outgoing cash, you'll never be able to steadily accumulate wealth and financial stability through the years.
The challenge lies in making a budget that's realistic, reasonable, and easy to follow. Otherwise, human nature being what is, you'll never follow your plan. That's where we come in!
Before you start the budgeting process, you need to decide on which type of home budget you'll use. Believe it or not, there are a few different types of budgets you can choose from.
Here's what we recommend:
Using this type of budgeting process will allow you to exactly match your income to expenses, even out your cash flow, ensure you have enough cash on hand to pay irregular bills and save for irregular expenses, and guarantee accumulation of wealth (as long as you have debt repayment, savings and/or investing as part of your home budget).
We take you through the budgeting process step-by-step in our How To Make A Budget section, but for now, here's a very quick glance at the steps you have to follow to make a really effective personal budget plan:
It's one thing to go through the budgeting process and set up a personal budget plan. It's quite another to create a budget that's realistic, effective and easy-to-track.
Take an hour or so to read through the articles in our How To Create A Budget That Works section to learn exactly what makes home budgets successful. Use that information to adjust, or tweak, your home budget so it's just right for you and your personal financial situation.
As you learn how to make a budget, remember that you want to do whatever you can to defeat human nature (immediate gratification, which leads to impulse buying). The more systematic your home budget is, the less chance there is that your emotions can play into how you manage your money.
What good is a home budget if you don't follow it?
At the end of your budgeting process, decide how you'll track your household budget on a day-to-day basis.
Your options include:
The key to tracking your personal budget plan is to find a method that you understand, you enjoy using, and that fits easily into your lifestyle. You want to stay motivated to stay on top of your budget.
Ready to begin the making a budget?
Let's go to Step 1: Getting Organized...