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A Budget You Can Live With

Paul Ambrose
Paul Ambrose

For most people, the budget process has always been simple:

Step 1:  Locate hammer.
Step 2:  Smash hammer into head until unconscious.
Step 3:  Wake up and go spend money how you please.

Seriously though, coming up with a budget that doesn’t give you fits every time things don’t go as planned (do they ever?) can be a painful task.  A more simple (and hopefully  less painful) way to assess your financial situation is outlined below:

1.    Take a sheet of paper.  Draw a big box on it and divide it down the middle.  On the left side write the word “income” at the top, and on the right side the word “expenses”.  Put down all the things that you earn money doing on the left side, and all the things that cost you money on the right side.  Be sure to include any secondary sources of income you have and don’t try cheating by putting down your “before tax” income.

2.    Now on the right side, after you’ve written down everything you can think of that is an expense, separate them into two categories:  fixed and varying (did I mention you should be using a pencil with an eraser?).  Fixed expenses are things like your rent, car payment, or electricity bill.  Varying expenses can be things such as gasoline, food, or even eating out.   There is a reason for doing this, so don’t skip it.

3.    Add the two columns.  If your income is more than expenses, congratulations!  You are in the enviable position of having more money than you know what to do with.  Try investing a little more, or paying down some of that credit card debt.  If not, well, we’ve got some more work to do.  You have two options:  increase your income or eliminate some of these expenses.  For helpful tips on how to increase income, try googling “Ways to earn extra money”.

4.    If you can’t find any way to increase your income, you’re gonna have to eliminate some things from the expenses column.  Start by looking at the ones you labeled, “varying”.  Is there any one of those that could be reduced or even eliminated?  Chances are the “fixed” expenses really can’t be played with, so the only room you have to play with is going to be in the “varying” expenses.

5.    This last step is the most important in keeping to a budget:  review it regularly.  Have you been keeping to the budget, or—like me—have you completely disregarded it?  Here’s a tip I found helpful:  include a category called, “Fun” in your expenses. 

Use that money when you just really need a night out without the budget.  Or, if you’re really allergic to the whole budget process, list all the “fixed” expenses, and then allot the rest of the income to “fun”.  That way, you pay all the things you need to, and still have freedom to spend some money how you like.  Whatever you decide, the review process is important to determine whether you still need to cut back—or perhaps you’ll find you have more cash than you thought! 

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