How to Make a Budget that Works
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Many think building a budget is a difficult and time consuming task that’s bound to result in epic failure. But, in fact, the process doesn't have to involve spread sheets and daily receipts tallies. It can be one of the most important, life-changing financial decisions you'll ever make. If your budget works.
How do you make it work?
Think of your income as a pie. Everyone loves pie and it's oh so American. Before you gobble it up whole, divvy it up into three slices for after-tax income, savings, and everything else. Then make a plan for managing each of those slices.
How to Make Your Budget Work For You:
After-tax Income: Your take-home pay is not your salary. While tax brackets range depending on your income, Uncle Sam collects somewhere between 10 to 35 percent of your salary each year. You can find the marginal tax brackets here. Use them to estimate how much of your salary you actually get to keep.
Savings: Try to put aside at least 15% of your income for savings. If this target is unrealistic – then put aside whatever you can – every little bit helps. At the very least, tap into you company’s 401k match if they offer one.
It’s good to build an emergency fund outside of your retirement plan. As layoffs become a common occurrence across the nation, storing money in a savings account seems like one of the smartest money moves you can make.
Everything Else: After taxes and saving, you might have about 60% of your pay left for everything else.
- Create a list for the month to determine your typical monthly expenditures.
- Take a sheet of paper and label it wants and needs. (For example, rent and electric would fall under needs, but a trip to the movies to see Slumdog Millionaire would be placed under wants.)
- Add each column in the wants and needs section to get a understanding of where you spend.
- Determine where you're out of balance, and where you can shave costs. (If you're spending too much for rent, you might want to consider roommates.)
- After evaluating all your expenses you might find you can add a bit more to your slice of savings.
Once you’ve spent some time figuring out your cash flows, you might want to turn to an online tool to help you track your finances. Your bank may offer online tools for free – so check in with them. Here are a few of the other top budgeting platforms out there:
1. Quicken Online offers free and easy money management to budgeters.
2. Mint.com offers online budgeting and money software to its users.
3. Wesabe provides a supportive community with money management tools for those looking to create a budget.
Remember: It's much easier to stick to a reasonable budget that allows you to have a little fun with your money.
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Good article with good advice and helpful shortcut links.
For people that are like myself who like to work on their finances in
financial management software, on websites and spreadsheets I recommend that they do the following; at least initially to while getting started on the road to having a better grasp of their finances:
1.Find a good template
2.Save it to your computer's hard with a new name such as
Budget 2009-10-02 or Budget 091002 should keep multiple Budget files from different time periods sorted in chronological order.
3.After you create/save your initial blank template with your new filename, simply fill in what you know for certain.
4.Then, you work o n getting into and developing the HABIT of doing frequent reviews and revisions/updates as needs/wants, goals, etc arise as time goes by.
This should hopefully help you in at least a few positive ways. I'm confident there are others too but these are the big ones I have on my mind right now.
First I find it easier to work budgeting into my already busy schedule by doing frequent micro budgeting sessions. I don't set out to revise my whole budget in one or two sittings if I am wanting to make significant changes to it or recreate from scratch for a new period, etc.
Second, I find it helps to reduce stress and anxiety over the very personal financial numbers involved in the process.
Third, this methodology makes the process more interactive and flexible on an ongoing basis which helps to keep one's finances in the forefront of focus and effort to find, capture and capitalize on Budget expenses cuts/savings sooner rather than later.
Fourth, it also gives you repeated opportunities to spot errors, omissions.
Fifth, it has also give me budget spreadsheet design/layout ideas as far as customizing/personalizing my budget's appearance, where I didn't have to commit immediately to a specific design/layout long-term as I change my spreadsheet as I decide my preferences change as time goes on. For example, in one micro-session I may add column to my spreadsheet or row. Another time, I may add some color to some cells and/or cell formats such as for Negative Numbers in Red in Parenthesis. And, yet another time I may add another calculation such as I start out with Monthly figures but in one session I add column and formatting for Weekly and Bi-Weekly periods to go along with my monthly and Yearly column. If you have a household that has one spouse Paid Weekly and the other Bi-Weekly, you may want to create a Monthly and Weekly combined Budget. If one spouse is paid Bi-Weekly and the other paid either Bi-Weekly or Monthly you may want to create a Budget for Monthly and Bi-Weekly combined. At the very least you'll want to create a Monthly Budget with Yearly Totals.
But, including weekly time periods into your budget would increase your level of and tightness of control over your money and help you more so that your money is not inversely controlling you instead instead of you controlling it (the way it can, should and will be), and your level of potential benefits from the process of budgeting.
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