Budgeting Is Easier When You Keep It Simple

If massive spreadsheets, complex filing systems, and intricate mathematical equations are some of your least favorite things–right up there with jazz fusion, lima beans, and having your toenails yanked out one by one–you will be relieved to know that creating a personal budget involves none of the above. In fact, the best budgets are simple to calculate. And easy to follow.

So hang on to your toenails and get ready. You are about to master the art of budgeting.

How much money do you take home each month?

Calculating the answer to this question means adding up all of your sources of income including your take-home monthly salary, child support, government subsidies, and any other funds that you can rely receiving on each month.

Gail Vaz-Oxlade, home finance guru and host of the television show Til Debt Do Us Part, recommends that if you receive income that is irregular–think annual bonus–you should not enter it under income. This way, if you don’t receive it for some reason, you won’t be in hot water.

How much do you spend each month?

When determining your monthly expenses, it is important that you are as thorough as possible. Begin by listing your fixed expenses–the ones that remain constant from one month to the next. Things like your rent or mortgage payment, insurance, loan payments, utility bills, and property taxes should be listed here. You must also incorporate a savings allotment into your budget and, like all fixed expenses, make sure it is paid each month.

Daily Finance‘s “8 Steps to Creating a Personal Budget” states that you should include an emergency fund in your budget to cover unexpected expenses like medical bills or car repairs as well.

Next, create a list of your variable expenses–the things that fluctuate month-to-month. These are expenses that you control such as groceries, entertainment, clothing, and travel. These are the areas that you will be able to trim if needed.

What’s the verdict?

It is now time to subtract your expenses from your income. (Insert drum roll, please).

Your personal budget is considered balanced if your income exceeds your expenses–including setting aside money in your savings each month. If this describes your current situation, you have earned a pat on the back. Please find someone close-at-hand to give you one.

If you are, in fact, spending more than you earn, you need to make some changes. You will want to begin by cutting back on your variable expenses like how much you spend on clothing or eating out. If this doesn’t suffice, you will also need to revisit your fixed expenses. As CNN’s “10 Steps to Making a Financial Budget” warns, some luxuries dress themselves up as necessities. You may need to re-examine your definition of “wants” and “needs.” If you need help clarifying these terms, check out Forbes‘ “Wants Vs. Needs: A Day One Chronicle.”

What if your income truly does not support your needs? Bank of America advises that you may need to find ways to boost your income by creating a side business such as doing handy work or teaching an instrument. You could also take on a part-time job or rent a room in your house.

How’s it working?

You will need to revisit your budget from time-to-time as your situation changes, but as long as you are sticking to the plan and building a healthy nest egg, you will be able to kiss your money woes “bye bye.”

Now, that was a relatively painless process, wasn’t it? And you didn’t have to eat a single lima bean.

If you’d like help getting your budget started, you may want to try using this simple budget template.