Budgeting Tools and Tips

What You Need to Know

You can't achieve financial freedom without budgeting

Why? Because people who can account for their money are in control of it. You can't build a house without a blueprint. You can't run a business successfully without a business plan. And you can't successfully run your household without a budget.

You may be amazed to learn that many Americans live paycheck to paycheck, without knowing where their money goes, what their spending habits are, or when they will be out of debt.

Myths About Budgets

"A budget is restraining and limits my freedom."

Not so. A budget actually does the opposite; it puts you in control and helps you achieve your financial goals.

"I can't solve my money problems unless I make more money."

False. You can do a lot to solve your money problems right now by sticking to a budget.

"Budgets are complicated and take too much time."

No way. With a little instruction, anyone-even children-can create and maintain a budget. After the initial setup, maintaining your budget records takes about 30 seconds per transaction.

Can you plan for the future if you're living paycheck to paycheck, with no spending plan, no savings plan, no end-of-the-month summary report, and no idea of when you’ll be out of debt? No way.

Having a budget doesn’t make you a slave. Properly done, it will reflect your lifestyle and include allowances for fun and recreation. What a budget will do is allow you to stop overspending and start saving. It will bring order and new priorities into your life.

You don’t need an extensive filing system to keeping track of expenses; all you need are envelopes for receipts and account sheets. Start by separating your expenses into fixed, flexible, and discretionary categories, and list them on account sheets as you pay them.

Use business-sized envelopes for each month as you go along. Then get one big file or envelope, indicate the year or period covered, and keep your monthly envelopes in it. Records from checking accounts, tax-related transactions, etc., should be saved for at least seven years. Tax returns should be saved indefinitely. For household receipts, two or three years is adequate. Insurance policies should be saved as long as they are in force.

Start the budget process by writing down your fixed monthly expenses like rent, car payments, and insurance. Then make a list of your flexible expenses like groceries, utilities, gasoline, and medical expenses. Finally, list discretionary expenses such as clothes, entertainment, etc. Make sure you don’t leave anything out; don’t forget your morning cup of coffee or your newspaper! The key is to include everything you spend money on. Look back over your check stubs or bank statement to see where you've been spending money.