Our Overview Of The
Budgeting Process

Let's go through a quick overview of how the budgeting process works before you begin your personal budget plan.

Importance of Budgeting

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.

budgeting-process-01.jpg

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).

How To Make A Budget - In A Nutshell

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:

  • Get organized. Create a "personal budgeting command center", gather pay stubs, bills and statements, and sharpen your pencils!
  • Analyze your income. You need to know how much you earn, and when you earn it. Decide which pay period you'll use for your home budget. Will your budget be weekly, biweekly or monthly?
  • Analyze your expenses. List them all, and be realistic. Include savings, retirement contributions and investments (technically, they're money you're "spending". Make sure you note when your expenses are paid: weekly, bi-weekly, monthly, quarterly, semi-annually or annually.
  • Create your budget. Take your pay period and allocate income. Next, allocate all those expenses you analyzed, broken down into pay periods. Aren't you amazed at where each paycheck really goes?
  • Tweak your budget. Do you have a surplus every pay period? Allocate more to debt repayment, savings and investments? Do you have a deficit? You have to analyze those expenses again, and figure out where you can spend less in order to get your budget back to zero. Tweak expenses again to see if you can spend less, and save and invest more. How to pay your bills? At the beginning of each budget pay period.
  • Make it automatic. If you automate your monthly household budget (or biweekly, or weekly), you can be sure your personal budget plan is being executed just the way you want it. Your bill payments won't be late, your saving and investing will be "invisible" and "untouchable" (and growing), and your discretionary spending will be much easier to control.

How To Create A Budget That Works

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.

Tracking Your Budget

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:

budgeting-process-02.jpg

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...

[?] Subscribe To This Site

XML RSS
follow us in feedly
Add to My Yahoo!
Add to My MSN
Subscribe with Bloglines

Free e-book