How to Create a Budget

Want to know how to create a budget that not only works but one that you can actually live with?

A good budget is one that allows you to easily manage your personal finances without cutting out any of the things you enjoy in life.

Like most people, you probably believe that being on a budget means having to live like a miser, pinching every penny and cutting out all unnecessary or foolish expenses such as life or fun...but you're wrong, completely wrong!

Learning how to create a budget is not as hard as you think it is. It's actually pretty easy once you've comitted yourself to getting on a budget to reach your financial goals.

A budget done the right way should do all the following:

• Help you manage your finances
• Control spending
• Get you out of debt
• Build up your savings
• Allow you to live well within your means!

The last point is really the key to knowing how to create a budget that works. Your budget will fail miserably if you there's no room for fun in it. It's extremely important not to cut down too much on expenses that may seem unnecessary at the time. Bottom line, make room in your budget for that vacation, big purchase or whatever else excites you - it will make your budget infinitely easier to stick to.

Like everyone else, you technically know how to create a budget and have probably setup budgets countless times only to have them fizzle out like so many diet fads. This was certainly true in my case until I learned how to create a budget the right way which is to make room for fun in my budget.

"Don't fit your life into the budget. Fit the budget into your life."

Steps how to create a budget that works (cash budget)

1 - Keep a journal of daily expenses for a month -The first thing you need to know when learning how to create a budget successfully is to track your spending. Carry an expense diary or journal with you every day for a month. Write down everything you spend money on whether your paying by cash, debit card or credit card doesn't matter - write it all down. Alternatively, if you bank online and use debit exclusively for all your expenses and purchases you can use receipts and track your spending by logging into your bank's site. This will ensure that you get the most accurate picture of monthly spending.

2 - Tally up total monthly expenses - This is a critical step in creating your budget. Expenses don't just mean things you have to pay like housing, car and groceries it should also include money you spend going out with friends, dining out, renting movies or spur of the moment shopping sprees. After logging your daily expenses for a month use this handy, free budget worksheet - believe me, it will save you alot of work and will possibly shed a bit more light on how to create a budget the right way.

TIP: Gail's free budget worksheet above automatically cuts your variable expenses down by a whopping 39.55%. As you enter your expenses in the worksheet you'll notice each jar money category is 7.91% less than what you currently spend.

3 - Tally up total monthly income - Add up all your income from work and be sure not to forget things like bonuses, investments, pensions, child support or whatever else is coming in on a regular basis. You want the monthly amount here so... if you have an annual salary just divide your yearly salary by 12. If you get paid weekly, multiply your pay by 4. Bi-weekly...you get the idea.

4 - Enter your expenses in the worksheet - Using the free budget worksheet and your personal expense journal, enter all your expenses. Fixed expenses include your mortgage, car payments, child care expenses etc. Next you enter all your variable expenses like gas, restauraunts, repairs and entertainment.

TIP: Accurately tracking your spending over a month in an expense journal or diary really eliminates the guess work out of your variable expenses.

5 - Figure in debt repayment - When learning how to create a budget, this is where alot of people go wrong. People either pay too much or too little on their debts. If you have alot of debt, repaying should be the top priority of your budget. A good rule of thumb is to dedicate about 15% of your total net income towards paying off debt. Using the budget worksheet you can tweak the numbers as you see fit.

TIP: When dealing with debt the best strategy is always - pay it off as quickly as possible.

6 - Figure in savings - Now comes the fun part of learning how to create a budget. The guidelines in the budget worksheet above are not etched in stone, they can be changed to whatever numbers you feel comfortable with. That being said, a good rule of thumb is to put atleast 10% of your total net income into savings.

TIP: Never forget the golden rule of saving money: "Pay yourself first!"

7 - Allocate money for weekly variable expenses - Using the trusty budget worksheet go to the section with the heading JAR MONEY and note the weekly and monthly amounts each expense category. Next you will want to take 5 jars, envelopes, tupperware containers or whatever else you can safely put cash in and label them Transportation, Food, Entertainment, Clothes/Gifts and Everything else.

The money jar system is a variation of the envelope budget system. Some people feel the cash budget is an outdated budgeting practice but believe me when I tell you - it really works! It certainly worked for me and more importantly it can work for you too.

8 - Stick to it! - Now that you've laid the ground work with your cash budget in place - the rest is up to you. Live within your budget, take full control of your spending. With every passing month you will be edging closer and closer to financial stability. Don't lose sight of what you hope to accomplish whether its getting out of debt, saving money for home renovations or a family vacation in the sun - it'll help you stay on track.

Happy budgeting!

...and that is how to create a cash budget. You may also be interested in personal budget software or perhaps an online budgeting system as an alternative to cash or envelope budgeting.

Here is some more advice on how to create a budget: personal budgeting strategies

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Table of Content

Budgeting Tips - Looking for budgeting tips that work? Basic budgeting guidelines plus top 10 budgeting tips to help you set up your budget.

Personal Budgeting Strategies - Want to know which personal budgeting strategies are most effective? Here are three different personal budgeting strategies as well as the pros and cons of each strategy.

Living On A Budget - Think living on a budget is only for people on a fixed or low income and couldn't possibly apply to you? Are you worried that a budget will only reduce the standard of living you currently enjoy? Not worth the hassle?

Cash Budget - What is a cash budget, really? Does it involve getting rid of
credit cards and living on nothing but cash? Is there anyone under 65
living this way? The answers may surprise you.

Personal Budget Software - Need help finding quality personal budget software? How about a program that's both user friendly and makes budgeting fun? Oh, and you probably want
it to be cheap too, right?

Frugal Living - Think frugal living is just for cheapskates and penny pinchers? Do you believe that living like a vagabond is the only way to be frugal? Frugal living isn't about cutting back on life's little luxuries just to save a dollar. It's about living within your means, moreover it's about living well within your means.

Money Saving Tips -Looking for money saving tips you can actually use? Well if it's savings you want, it's savings you'll get - right here! Lots of money saving tips on everything from gas to groceries.

How to Save Money - How to save money in 4 easy steps. Reach your ultimate savings goal by following these 4 surefire, money-saving steps.

Household Money Saving Tips - Want to turn your home into a money-tight, energy-saving dynamo? You can by following a few practical money saving tips. Find out how you can save on everything from gas to groceries.

Debt Management Tips - Looking for debt management tips that'll help you get you out of debt faster? Want to minimize the amount of interest on your debts while your still paying them off? These simple, practical tips will help you do just that!

Getting Out of Debt - What's the best way of getting out of debt? Are you confused about all the different debt solutions available? If you're in debt and considering options such as a debt consolidation loan, credit counselling or restructuring your mortgage to include some or all of your debt...READ on!

Make Extra Money Online - Want to make extra money online? Here's is a listing of honest, legitimate ways to make extra money online - no get rich quick schemes here.

Recommended Reading - Here are some highly recommended books you might be interested in reading. I've learned so much from each and every book listed here.