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According to financial expert Dave Ramsey,

A budget is telling your money where to go instead of wondering where it went.

In other words, budgeting is the process of allocating your financial resources. When you map out where you want your money to go, you will stay on track with your goals more of the time. Budgeting is rarely done perfectly, but if it is done with excellence, you can make it work for you.

If True North is where your goal is, then a budget is the compass that will keep you headed in the right direction.
How to Make a Budget

Keep it Simple

The more complicated the plan, the more variables you will have to account for and deal with. When a budget is hard-to-follow and tiresome, your chances of giving up will increase significantly.

This brief guide lays the groundwork for a very simple, workable plan. Even if you are hundreds or thousands of dollars in debt, you can still benefit from creating a budget. After all, we all have to start somewhere.

Analyze Your Financial Statements

Begin the budget creation process by gathering all of your statements, which might include: bank statements, investment portfolios, utility bills, and any other information pertaining to your income or expenses. Create an average figure for everything.

Add Up Your Income Sources and Expenses

Figure out how much you make on a monthly basis. Make sure to account for all income sources, be it self-employed income, rental income, business income, or regular paychecks.

Likewise, add up all of your expenses and categorize them. Some expenses are fixed, while others are variable. Slot all expenditures in one of the two groups.

Ideally, your income will be a greater figure than you expenses. If you find that your earnings are indeed greater than your expenses but you still don’t have any money left at the end of the month, you are in the same position many people are in.

In short, you have money that’s going towards entertainment or eating out or some other activity that you’re not tracking. This is why you haven’t been able to save, and this is why you might be stuck in debt. Now you are probably beginning to understand the value of assigning where you want every dollar to go.

Money that is not accounted for is money that could be used to eliminate your debt or to furnish your savings account.

According to author Glenn Bland, the following six areas are the most important financial considerations:

  1. Giving (i.e. church or charity)
  2. Savings
  3. Insurance
  4. Food
  5. Shelter
  6. Other (everything else)

When you take care of each of these areas in the order listed, you are setting yourself up to prosper. Moreover, assigning values to these categories is much easier than trying to track every little detail.

Make a Budget

Based on the data you’ve now collected, you should be able to create a plan for yourself. Your budget dictates your priorities; therefore, it should reflect what you value most.

You don’t necessarily have to follow the Glenn Bland method, but do make sure to keep things simple. Tell your money where you want it to go, and then follow your plan.

Review and Iterate

Your budget may not be perfect the first go round. Does that mean you should give up on the process entirely? Of course not!

After your first month of budgeting and planning, you should already notice a bit of a difference in your spending habits. You may not have ended up where you hoped you would, but you should be inching closer to where you want to go.

Reviewing your budget on a regular basis will help you to stay on track. Iterating and revising your plan will help you to fine-tune your financial blueprint. It may seem time-consuming and tedious, but it is well worth the effort. If it seems like too much work, then it’s too complicated!