• The Who, Why, What and How of Budgeting

    Creating a budget can lead to a lot of emotions: fear, frustration, anger, guilt, anxiety; but it can also lead to calm and contentment. A written budget tells your money what to do for you. This control over your income and outgo, is the key to achieving financial peace.

    Who:
    Every adult family member needs to be involved in the budget process, whether they contribute an income or not. Its important that each persons voice be heard and their vote count. One person may create the draft budget, but both partners should sit down, have an open discussion and agree to the final version.

    Children may benefit from age appropriate exposure to the budget when it affects them. For example, if the family decides not to go out to eat after church following an expensive car repair earlier in the week they might explain to their child that the money set aside for the meal was used to pay for the repair.

    Why:
    Creating a budget may cause anxiety or fear, but the absence of a budget is one of the biggest contributors to financial stress. With easy credit and no budget, you may not even realize that youre overspending until its too late.

    Agreeing to a spending plan before the month begins makes the budget the bad guy when deciding whether to overspend. You want to go bowling with the guys and she wants to grab coffee with the girls, but the entertainment budget is spent. Its the budget that you both agreed to that is telling you no, not your spouse.

    What:
    A goal without a plan is just a dream. The written budget is the tool you use to reach your financial goals. Your budget tells your money what to do that month. It will be different each month because every month has different expenses (and maybe varying income).

    A budget isnt complicated and isnt a full financial audit. It is simply the amount of income you expect to make and how you plan to spend it.

    How:
    You can use a complicated spread sheet or a simple piece of paper but the basic steps are the same. At the very top, list all income you expect to receive for the month. Use the net amount, that is, the amount you bring home and will have available to spend. Next, list all the expenses you have for the month. Include every dollar you plan to pay out from utility bills to birthday presents to nights out on the town. Finally, subtract the expenses from the income. If the end result is anything other than zero, you have some work to do.

    If your expenses exceed your income, you must prioritize your spending.

    • First is to pay your four wallsthat is, your rent or mortgage, basic utilities, transportation costs and food. Click here for tips to reduce your food bill.
    • Next in line are your monthly obligations, any bills that have a minimum payment.
    • Finally, prioritize the remaining bills based on your life.


    If your income exceeds your expenses, congratulations! But, you still have work to do. First, give that extra money a job. The Baby Step you are on will help determine where the money goes. In BS2 the extra will go to pay down your lowest debt, in BS6, it will go to pay down your mortgage. Finally, take a look at your expenses and ensure that everything is in line with your income. Just because you can afford it, doesnt mean its the best use of your income.

    Building a budget is a critical step in achieving financial peace. Your chances of succeeding with money increase drastically when you have this basic plan for your money each month.

    If you are new to Debt Free Fanatics, and want to learn more about techniques for getting out of debt, we encourage you to register and participate in our forums. Our members have been managing their money for years and are happy to offer advice and instruction on how you can manage your money better and get out of debt.