I remember the when I realized budgeting in my head doesn’t work.
I was a 22-year-old college student whom everyone assumed was doing great financially. To stroke my young ego, I decided to write out what I thought I was spending each month before I actually looked at my bank and credit card statements for my first budget.
I figured I was spending about $200 a month on gas and $150 a month eating out. Besides a car loan, these were my biggest expenses and those amounts included a lot of slack. I never imagined I’d come anywhere close to those numbers.
I was half-way right, I didn’t come close to those numbers.
When I looked at my statements for the previous three months, I was averaging $300 on gas and over $350 eating out every month – more than double what I thought I was spending.
My internal budget wasn’t a little off, it was way off!
Sadly, my results aren’t unique or surprising. Humans are awful at guess work.
- Have you ever thought a “simple job” would take an hour and then spent the better part of a day on it?
- Ever asked someone for help and as you’re telling them the problem you figure it out yourself?
- Have you noticed that home renovations always seem go over budget?
Budgeting in your head fails for the same reason that other stuff happens. You don’t actually know what to expect so you make things up as you go along.
What’s the solution to an in-the-head budget? It’s writing down a budget on paper before you’ve spent a single penny. Categorizing the jumbled mess in your head clarifies the financial situation and gives you the answer you’re looking for.
Don’t skip this part, it is an opportunity to change your life and learn about yourself.
The Basics of Budgeting
Budgeting is simple. All you need is a piece of paper, a pencil, and first grade mathematics.
- Never budget more than a month out. Anything longer than a month and you will start to guess at things. This creates stress, not a plan.
- Start with income. Write your total monthly income at the top of the page. Without this number, the budget won’t work.
- Figure out what you want to pay for. This is where you write down rent, utilities, entertainment, gas, and anything else you might be paying for this month. Most of the categories will be bills, but there should also be some fun things on there like date nights and entertainment money.
- Do some subtracting. Subtract the total cost of the stuff you want to pay for from your income. If that number is positive, congratulations, you’ve just made a budget! If that number is negative, then it’s time to start cutting back or cutting out a few things.
Simple, isn’t it?
Isn’t There More To Budgeting?
No, at the core, all budgets conform to that simple structure. However, there are certain budgeting methods that appeal to different personalities.
Over the next couple of weeks, I’m going to be doing a series on different budgeting methods. Depending on your background and personality, one method may appeal more than the others. I want to make sure you know the options.
Whatever you choose, the basics of budgeting are simple: 1) budget before you spend anything, 2) start with income, 3) figure out what you want to pay for, and 4) subtract that from your income.
What is the worst part about budgeting?
Want to get started? Download a free sample-budget here.