Budgeting Basics

Need a crash course in budgeting basics? You've come to the right place!

So you've finally decided it's time to get on a budget. Congratulations! You're one step closer to financial freedom.

Budgeting is really very simple, there's only one thing difficult about budgets and that is sticking to it. You're probably not a total stranger to budgeting but like everyone else you've seen your fair share of failed budgets.

Here's some budgeting basics to help you setup a budget that not only gets the job done but one that you can live with as well.

Budgeting Basics : 8 essential rules no successful budget should be without

1Pay yourself first - No matter what your financial goal is paying yourself first is an important key to your budgeting success. A good rule of thumb is to put atleast 10% of your monthly net income into savings.

2 Keep an expense log/diary - Before you even start your budget it's a good idea to keep a journal of all your spending on a day-to-day basis for a month to three months. This takes the guess work out of tallying up your expenses for your budget.

3 Debt should be top priority - If you have debt it should be your budget's top priority. Pay off that debt as quickly as possible, debt is like a financial anchor weighing you down. 15% of your total net monthly income should be committed to wiping out your debt.

4 Cut costs wherever you can - It's important to try to cut living expenses wherever you can. Look over your budget, try to find areas where you could reduce costs. One area people tend to make the most cuts is on entertainment but this is one of the worst things you can do because it will make the budget that much harder to stick to. Always leave room for fun and all the things you enjoy in your budget.

"Budgeting is not about living within your means it's about living well within your means."

5 Set a realistic budgeting goal - It's never a bad idea to set a goal for your budget whether it's to eliminate debt, save money for some big purchase or building your retirement nest egg. To avoid disappointment you should set goals somewhat conservatively - life has a way of throwing us a curveball now and then which gets us off track. What I'm trying to say is, don't set yourself up for failure by setting your goals or expectations too high.

6 Live on cash - For many people these days the thought of living only on cash seems archaic and terribly outdated - but trust me it works! They say it's just not practical in this day and age with instant debit etc. I don't mean it in the literal sense, I just mean your variable expenses such as food, gas, entertainment and so on should all be paid in cash - spending only what is alloted for each expense in your budget.

7 Need vs Want - This is a tough but critical budgeting basic that most of us have a hard time with, myself included. Before handing someone your debit or credit card to buy that "must have" item you've been pining over ask yourself these 2 important questions:

1. Do I need it or want it? Give yourself atleast 24 hours to think it over, odds are you'll have come to your senses and have realized that you were acting strictly on impulse as we've all been guilty of.


2. Do I have the money to pay for it now? If the answer is no you should turn and run away in the opposite direction. This will lead to more debt, precisely what got you in this financial mess. If it's important enough and your putting money into savings you can save until you do have enough to buy it in cash.

8 Have an emergency fund - When doing up their budget this often gets overlooked but having an emergency fund is extremely important. Some experts will tell you that you should have a fund equivalent to about 6 months pay. Personally, I think your fund only needs to be about 1 to 3 months pay.

Now that you've got a better handle on budgeting basics you're ready to start building your budget.

Happy budgeting!

^ Back to top Budgeting Basics

> Return to Personal Budgeting Strategies page

> Return to Money Saving Ideas Home page