How To Make a Simple Budget

This is a lesson that we all should have learned in grade school, but most of us didn't. Better late than never, right?Here is the golden rule of budgeting...

Expenses > Income = Bad and Expenses < Income = Good

It is that simple. If you understand and abide by that, you will build wealth. If you don't you will destroy your wealth. You must spend less than you earn!

This is actually good news, because anyone can do it. Rich and poor and everyone in between can spend less than they earn. Granted, it may be easier for someone with a larger income, but anyone can do it.

Making your first budget

The primary goal of the budget should be to allow you to spend less than you make. This is the whole point. Amazingly when you define where your money is going to go, rather than observe where it went, this is a lot easier.

How to create a simple budget

The reason so many budgets fail is because they are too complicated. As with many things in life, the simpler the solution is the more likely it is to "stick".

The 2 rules for your budget

You can not spend more money than you make each month.
Money must be transferred to the budgeted categories immediately!

How it works:

Unlike most budgets where you have 20-30 different categories of items to be budgeted for, this simple budget only asks that you focus on the 1-3 most important ones. The reason for this is, because it makes it easier to stick with it. Then after getting the hang of it for a couple months, you can slowly add more categories, until everything is accounted for.

To get started, you would take your paycheck and immediately pay your top priority budget categories. For many people this might be charity, retirement savings, college savings, etc. But you pay these first - and then pay your bills. After that you can use the money remaining for entertainment, clothing, etc.

Most people intend to budget money, but realize, after spending it all, that there is nothing left to save. Paying the budgeting categories first ensures they will be funded, and the side-effect is that less money is spent on the things that don't really matter as much - i.e. entertainment, luxury items, etc.

How to stick with your budget

As you get used to not spending more money than you earn each month and paying towards your top priorities first, you can started adding categories to it. As you add to it, you should add fun items like vacations, clothing, entertainment, etc. The key is to do it in moderation and to abide by your limits that you established for yourself.

Budgeting actually becomes fun when you have fun items budgeted for! It is a much better feeling when you have money saved up in a bank account waiting to be spent on vacation, rather than having to use a credit card! So, get to it and keep at it - it will be worth it in the end!

In order to get started with your budget, you should download a free budget spreadsheet or create one. But really all you need is some way to mark down all your monthly expenses and your income.