What is budgeting?
Budgeting is preparing a plan of your expenses against your income.
Why is budgeting important?
Budgeting is the key to successful wealth. Todd Henry said, “Equity makes you financially wealthy, not income.”
It will help you prioritize your expenses and plan for long-term wealth growth. Budgeting may seem complicated and it may seem unneeded but understanding the importance of budgets can empower your life.
How do I know if something is a priority?
It’s always important to ask why something is a priority. Is this a want or is it a need? Dave Ramsey will tell you to take care of your Four Walls, which are Food, Utilities, Shelter, and Transportation.
Even though something may not be an immediate priority, it doesn’t mean you can’t plan for it. The point of a budget is to have a purposeful plan for your expenses.
How do I get started with budgeting?
First you want to know all your income. If you are married, you will include both salaries. If you are an hourly employee or work on commission, it’s best to start with the guaranteed amount you will earn to use as your base income. For example, if your spouse nets $500 a week and you net $1200 bi-weekly, your estimated monthly income after taxes is around $4,400.
Second, you would take your expenses from the priority order and include the expense amount. Below is an example of a completed budget for the items mentioned.
| Budgeted Item | Expense | Income | Balance |
| Monthly Income | $ 4,400 | $ 4,400 | |
| Housing | $ 1,000 | $ 3,400 | |
| Electric | $ 150 | $ 3,250 | |
| Water | $ 30 | $ 3,220 | |
| Food | $ 600 | $ 2,620 | |
| Internet | $ 100 | $ 2,520 | |
| Garbage | $ 20 | $ 2,500 | |
| Cell Phone | $ 150 | $ 2,350 | |
| Car Payment 1 | $ 400 | $ 1,950 | |
| Car Payment 2 | $ 400 | $ 1,550 | |
| Car Insurance | $ 200 | $ 1,350 |
After we subtract all those values, we will have a balance of $1350. Now we would want to include any miscellaneous items including television, giving, subscription services, debt, spending money, etc. These choices are up to you as the budgeter.
There will be things you may forget, such as gifts, field trips, kids sporting games, date nights, etc., but these things will be learned and adapted over time.
What if my expenses are more than my income?
There are two answers. First verify that all your expenses are needed. Can you cut out cable or subscription services? Do you have a car that you can sell? These are things that can help your expenses shrink. This post is to ask you to find ways to manage your expenses. It’s not intended at explaining negative effects of debt.
If there is nothing you can cut, then you will need to find alternative income. That can be getting a side job, having a spouse get a side job, or switching to a job that pays more income.
What if my budget doesn’t work?
Your budget will not be perfect the first time you start doing it. In fact, it will take significant time to be an expert in budgeting. From time to time, you will still have inaccuracies. Things do come up we don’t plan for, but the most important piece is to know how to adapt to them.
Don’t lose focus. Don’t give up if you make a small mistake. Learn from it and do your best to plan better next time. Once you learn your budget, you will be able to plan for future endeavors such as vacations and retirement.
