First Steps to a Balanced Budget

Many people in the world, and in the United States in particular, live paycheck to paycheck.  When something happens, like a job loss or a reduction in hours, it's hard to deal with.  In particular, the last several years have been difficult on people's wallets.  They may have seen their income reduced dramatically.

It's difficult to make and stick to a budget in the best of times, but when you have to make due with what seems to be an ever-decreasing budget, it can be even more difficult.  Sometimes it's tough to even know where to start.

I personally have had to deal with an ever decreasing budget.  In 2003, I was in the military and was making the equivalent to about 5 times what I'm making now, if you count the free housing and other benefits that I had.  I have had to figure out what could be cut, and what should be kept.  Even now, my income is very irregular, and we rely on predictable, but very uneven, sources of income to keep us afloat.  Even if you have difficulty creating an actual budget, these steps can help you manage your money a little bit more efficiently.

The first step to creating a budget is knowing what you are spending your money on, and where the money is coming from. If you're in a hurry to get your spending under control, you can do it on paper now, and tweak your budget later once you realize what your actual spending habits are, but you'll want to at least write down what you think you're spending your money on.

Think about your bills first. How much is your rent or mortgage? What do you pay for phone service (landline and cell phone)? How much are your utilities? Do you have a car payment or credit card payment? There are a lot of bills that you probably deal with on a monthly basis. Some things, like electricity, might change over the course of a year. Eventually, it may be easier to even things out and set aside an average amount to pay for bills like electricity, which can change over the course of a year, but if it's the time of the year when you spend the most on a particular item, you'll have to pay the full bill now.

There are parts of your budget that you have the ability to easily change. Everybody has a grocery budget, and most people have the ability to cut back on the amount that they're spending, to a degree. Perhaps you like to stop for a latte on the way to work every morning. Lunches at work, eating out, clothing, magazines, and other small expenditures can add up after a while.

Once you have a list of what you are spending, you'll need to list your earnings. If you have a job that pays fairly regularly, this probably won't be that difficult.  If you have seasonal earnings or work on commission, your earnings might be a little more difficult to track.  Since my husband is a law student, our earnings are very small during the school year, but we get large income tax returns and have more income during the summer.  We have to adjust our budget to pay ahead in rent when we have money for the times when little is coming in.

If what you're making is more than what you're spending, great!  You can easily create a budget.  You'll still want to keep track of your spending over the next couple of months to make sure that what you're earning aligns with what you're spending.  You might also want to see if you can find areas that you can cut back in, so you can save some money.  Financial experts like Davy Ramsey suggest that you have at least $1000 of emergency money set aside for unexpected events like car repairs.  If you're debt free, you should try to set aside between six and eight months of expenses (Suze Orman suggest eight months right not because of the weak economy).

If you need or want to cut back your expenses, you'll want to prioritize your needs, wants, and high priority wants.  You need to pay for items like the rent or mortgage, car payments, and credit card bills.  You need to buy basic amounts of food, although you do not generally need to eat out, buy candy bars, or drink soda.  You need to have clothes, but you might be able to cut back by buying less expensive clothing.  You might decide that having cell phone service is more important than having a landline (or vice-versa).  I purchased pre-paid service for my cell phone so I have it in emergencies, but I only spend about $25 a year on phone calls because I use it so infrequently.

Since everybody's priorities are different, only you can decide where to cut back first.  Some people choose to sell their car or move to a smaller home with lower payments in order to save money.  In my family, we currently do what we can to train our kids in gymnastics, although there are a lot of things that we have cut back on.

For most people, creating a budget is an ongoing process.  Even if you can put together a budget that works now, when additional expenses creep in, or the income increases or drops, you'll have to alter the budget to deal with the changes in your life.  Often, budgets don't work out perfectly the first time, and will have to be tweaked right off the bat.

A budget is simply a spending plan.  Write down what you plan on spending your money on, and compare it to what income is coming in.  If your initial budget has you spending more than you're earning, you'll have to cut some things out until your spending is less than what you're earning.  Ideally, you'll be saving some money for a rainy day, but if you're living off unemployment or working for minimum wage, that can be easier said than done.

After you create a budget, stick to the budget.  If you need to spend money on something that isn't in your budget,  you'll need to rearrange your budget a little.  In my family, we would ask, when we wanted to spend money on something extra, where the money was coming from.  We would choose to take money from eating out and spend more in another area.  It might be helpful to have a little bit of spending money built into your budget initially.

Budgets are meant to help you save money and allow you to have money for the things that you want.  If your budget is not working for you, change it.  Spend less on one item in order to pay for things that you want more.  Look for ways that you can cut back on expenses (like shopping sales and using coupons to save on your grocery bill).  In some instances (especially in this economy), income may be the problem.  Look for ways to increase your income, if that is the case.