Budgeting: Improve Your Financial Prowess

What is Budgeting & Why Do They Matter?

Budgeting definitely has a negative connotation in society today, yet it really can make a huge impact on one’s finances.  In fact, it can even improve one’s financial prowess…yes prowess, meaning skill, ability, mastery and fearlessness.  Becoming a master at budgeting can set the tone to move forward with anyone’s financial dreams…fearlessly.  

Learning how to budget and manage money is a life skill, and it can be quite liberating knowing exactly where the money goes every month!  But many of us make budgeting hard, and it doesn’t need to be.  There are certainly more advanced ways of tracking finances, but this article will only scratch the surface and will be a budgeting 101 class style.  Just the basics.

So take a plunge and learn how to successfully budget your money, get some tips and advice, and download the free bonus items: spreadsheet templates, and PDF worksheets.

What is a Budget?

OK, what is a budget?  In simple terms, a budget is categorizing every dollar that is made, spent and saved.  It is a PLAN… a guideline or set of rules to dictate what happens with one’s money.  Budgeting can be done on a weekly, monthly, or even yearly basis.  

Consider these situations:

  • Are you currently spending more than you make?
  • Or perhaps you are only saving a small percentage of your income each month, and you want to improve that percentage?

Those of you who fall into these two categories are prime candidates to create and live according to a budget.  Tracking every dollar can really help you understand where your money is going, along with the areas to cut back on.

Budgeting Styles

Here are some different types of budgeting styles: envelope budgeting style, apps and software, pen and paper, and spreadsheets.

Budgets can be created by individuals, roommates, or households and families; heck, people even design budgets for weddings and other specific events these days.  

Creating a personal budget starts with tracking.  There are lots of ways to track money.  The envelope budgeting style, software’s and apps, spreadsheets, or the tried and true method of putting pen to paper all work great.  

So what is the big deal?  Why are budgets important?  Let’s find out…

Why Budgets Matter

Why do budgets matter?  What is the importance of budgeting?  There are people around all of us that are NOT living within their means.  Everyone knows somebody who is always buying the next best car, boat, house, or toy; yet they are struggling to put food on the table (Is this person you!…?)

While living outside of one’s means may seem harmless (at first), in the end the debts that need to be paid back WILL CRUSH THEM if they aren’t ready or able to pay them back.

To be clear, not all purchases must be made with out-of-pocket cold hard cash in order to ensure live within one’s means.  It may make perfect sense to borrow money in one form or another at different times throughout life.  But having debt is only reasonable IF it fits comfortably within a budget.

BUDGETING. IS. IMPORTANT. It does matter. Budgeting leads to living within one’s means and THAT is the best way to financial freedom.  

Financial success stories can be found everywhere online and in full display.  Take a look… nine times out of ten, they first implemented a budget into their lives.  

Budgeting really does help to improve one’s financial prowess!

Budgets help plan for the future, like saving for emergencies, planning for early retirement, or booking a one-way trip to live on mars.  In fact, truthfully…budgeting might be as cool as flying to mars!

Budgeting Infographic

Budgeting is as cool as flying to mars! Going to Mars and making a budget might not be that different after all. What do you think?


Budgeting 101 – Creating A Budget

Learning how to make a monthly budget doesn’t need to be hard; infact, budgeting process steps are rather simple.  Get ready for a few action steps along the way.  Feel free to pause, work on the action step, and then come back…there’s a lot more to learn. 

ACTION STEP: Grab a pen and paper, or open up one of the spreadsheet templates at the bottom of this article, and follow along.

How to calculate your income

This is money coming INTO your possession.

Step #1 – Calculate the Income

Income is money that is earned.  Income can be in the form of a salary from work, interest or investment earnings, or any money from a side business.

To keep things simple, use the “take-home” pay or “net pay”.  This amount has already had taxes taken out by an employer.  Unless a tax refund is issued, you will never see that money again… so don’t include it.  

For those who own a business or earn money as a contractor, taxes were probably not already taken out.  Add the appropriate tax number in as an expense later.

ACTION STEP: Write down (or type in) all of your income sources, add them up for a total income amount, then move on to Step #2.

Step #2 – Calculate the Expenses

Budget Expense Calculation

This is money going OUT of your possession.

Expenses are what money is spent on.  On the spreadsheet and PDF templates below, there are many types of expenses.  If you are just using your pen and paper, then here are some expenses to keep in mind:

  • Housing Expenses: such as rent or mortgage, renter’s insurance, home repairs, and property taxes.
  • Utility Expenses: such as electric, water, gas, phone, internet, and cable.
  • Auto Expenses: such as car payment, gas, insurance, maintenance, and title and registration.
  • Food: such as groceries and eating out.
  • Taco Tuesday: could fall under “food”… but shouldn’t it have its own expense line on everyone’s budget?  ☺
  • Personal: such as clothing, hair care, and medical.
  • Miscellaneous: such as a gym membership, life insurance, vacation, charitable giving, entertainment, allowance, and taxes (self-employed/contractor)

ACTION STEP: Write down each item that you spend money on, add them up for a total expense amount, write that number below your expense list, then move on to Step #3.

Step #3 – Calculate the Difference

Budget Difference Calculation

Take your income – expenses to get the difference!

At this point, the income has been calculated and expense portions of the budget are done as well.  The next step is to calculate the difference.  The ideal situation is having a positive number here.  

If the number isn’t positive here, then start looking at what expenses that can be taken out, or ways to increase the overall income figure.

This step is very intuitive… just do some simple math here and come up with a savings (positive) or loss number (negative).

ACTION STEP: Use a calculator (or your brain power) to take the total income minus (-) the total expenses.

Step #4 – It’s Done! Start Living Your Budget!

Congratulations!  You just created your first budget!  Knowing how to budget money is a big achievement!  Hopefully that wasn’t too painful!  The next step is to start LIVING this budget that has been created.  Start keeping track of the amount that is earned and spent each month and adjust the budget accordingly.  

Unexpected events happen to all of us.  Hopefully everyone has saved enough to cover those expenses; if not, then start saving for them TODAY!  Don’t wait; it would be a mistake to do so!

Next up…budgeting tips and advice.

Further Readings – Budgeting


Budgeting Tips & Advice

Budeting Tips

Here are some budgeting tips – forecasting, savings %, and analyzing expenses

 

OK, the budget has been created…congrats!  Here are some budgeting tips for families, college students, and individuals alike.  These tips will help improve your budget and the overall experience with budgeting.

Tip & Advice #1 – Forecasting & Planning

There are many out there living paycheck to paycheck.  Hopefully, by getting on board with a budget, saving money each month will become possible!  Regardless of those who are living paycheck to paycheck or not, keeping the future in mind should be a priority for everyone.

Proper forecasting and planning can help refine one’s budgeting skills and set them up for the future.  So what is proper forecasting and proper planning?

Forecasting

Mars Nightlife

Nightlife on mars is going to be awesome!

Forecasting is looking ahead, trying to predict potential future events.  These are important questions to be considered:

  1. What does the future hold for me?
  2. Do I want to go on a vacation next year?  
  3. Is my water heater or A/C unit acting funny and might go out in a few months? 
  4. Is my car not running up to par and a major fix is coming soon?  (or maybe you want to buy a new car?)
  5. What kind of nightlife can I expect on Mars when I move there?  Should I bring a metallic umbrella???☺

Everyone has a different situation, so each forecasting list will look different.  But the reality is that everyone has a forecasting list… you just might never have thought about it as “forecasting”.

ACTION STEP: Create your forecasting list.  Think about the next year and write down any item that may need to be paid for.   

Planning

Planning is taking the forecast list that was just created and attaching an action to each item on the list.  For example, if one of the expected items is to buy a new car next year, then first figure out how much is needed to buy that car.  Next, look at the budget that was created earlier and see if there is any extra money that can be set aside each month to plan for this future event.  

If there isn’t any money in the budget left over, then cutting back on expenses should be a major priority.  Remember that…

Planning is saving with a purpose.

Each month, review the forecast and planning list.

*For those who want to take this a step farther, keep a spreadsheet and allocate a portion of the savings amount to each item on the forecast and planning list.  Doing this will help keep the savings amount for each of these planned events separate from a general savings fund.

ACTION STEP: Create your plan, by taking each forecast item and attaching a specific action to it.  Consider doing the extra step of using a spreadsheet to keep track of individual items.

Tip & Advice #2 – What Percentage Should you be Saving?

What percentage should be saved?  This is probably one of the most debated financial topics out there.  Financial Experts have been heard saying 10% and others have said 30% or even more.  The next logical question might be, does that number include retirement as well as savings?

With financial experts saying somewhere between 10 – 30%, it would seem prudent to be somewhere in between those numbers for retirement and normal savings combined.  But here is one additional thought to consider:

Save as much as you can comfortably save… then try to save a bit more than that.

The application of this thought will aid the savings fund to continue to grow (long-term).

ACTION STEP:  Look at the budget that was just created… what is the percentage that has been saved?  Are you within 10-30%.  If so, great!  If not, look at the expenses and find a few expenses that can be cut out of your budget plan.

Tip & Advice #3 – Look at the Expenses

Spending money is really fun and we all do it.   Most of what everyone spends money on probably goes towards the necessities of life…food, house, utilities, etc.  Yet, other times, spending money on rash decisions happens to the best of us.  A quick draw of the credit card and a swipe at the counter may lead to a major regret down the road.

Remember this timeless true principle:   It’s not about how much money you MAKE, but rather how much money you SPEND.

In the second article of the Personal Money Manager series, learn how to create a savings plan to help address the spending issue.  This plan can be used to analyze and prioritize what one is spending their money on.  By learning how to reduce and remove certain items from the budget, you will start saving some real money every month.

ACTION STEP:  Make sure to move on to the second article and learn how to create a savings plan to unleash your savings potential.


Final Thoughts on Budgeting

Budgets really can be simple and fun, they don’t need to be overly complex.  Knowing how to make a budget plan, along with a few budget tips can greatly improve anyone’s budgeting experience.  Becoming a master at budgeting can truly set the tone to move forward with one’s financial dreams…fearlessly.

Learning how to budget is a practical money skill that is needed to financially survive in our world today.  Become a money manager by creating a budget and living true to it.  

Managing money is a key life skill that puts YOU in control…and once you have that control, then you truly have POWER OVER LIFE!


Bonus Items

Here are a few bonus items… a few simple budget templates:

Budget Spreadsheets & Templates


CHECK OUT MORE

If you enjoyed our article, feel free to download the condensed version.  Also, check out some more from Power Over Life!

Summary
Budgeting: Improve Your Financial Prowess
Article Name
Budgeting: Improve Your Financial Prowess
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Budgeting is a key life skill that will help you succeed in life. Learn how to create one, in addition to tips, tools, and templates to download. LEARN MORE HERE.
Jacob Merkley
Power Over Life
Power Over Life
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