Budgeting Part 1: Creating a Family Budget

It's been a while since I've posted on budgeting, the most basic of financial planning tools (but also among the most useful), so I thought I'd rectify that situation by featuring a series courtesy of Marotta Asset Management:

We have had several requests from people for help living within their means. Every year problems of debt and overspending frustrate millions of families. The problem has little to do with income, a lot to do with spending. Spending less than you earn is the essential foundation that creates the capital for investing and wealth building. Following the simple advice in this series of articles on budgeting will help you create the wealth necessary to benefit from professional fee-only asset management.

First, keep track of your expenses. Just as most diets work when you have to count the calories, so most budgets work when you start counting your expenses. Budgeting works by causing you to ask the question, "Do I really want to spend my money in this way?" Being frugal results from tracking your spending, analyzing your spending, creating a budget, and living within that budget. The order is cyclical because tracking and analyzing your spending makes you aware of waste. Once aware of your waste, you can eliminate it and adjust your budget accordingly. Keeping track of your spending is essential until your spending is significantly less than your income.

Several software programs are available to help you track your finances with less grief and manual bookkeeping. Finding a system that works for you is essential to gathering the information required to aggressively work toward your financial goals.

Once you know where you are currently spending your money, you can compare that to national averages to determine how you should adjust your spending to better meet your financial goals.

We have created a tool to help you get started. It is on our website at http://www.emarotta.com/budget.php

With our budgeting tool, you can fill in your weekly, monthly or yearly take home pay and click "Create Budget." It will create a sample budget according to national averages, and help you get started analyzing and adjusting your spending.

The purpose of this tool is to help you get started asking questions about your spending habits. You may not be putting as much as the tool suggests into savings, but it does point toward the most important principle: pay yourself first. Not with more toys, but cash, cash that is earmarked for long term financial independence.

Plan ahead for those inevitable big expenses. If you don’t have a category where you are putting savings away, then when the car dies, the roof leaks or you need new carpet your credit cards will have to cover the additional costs. Ouch! Most emergencies can be avoided by lifestyle adjustments and savings foresight.

By comparing your spending to the sample budget on our website you can identify areas where you may want to adjust your lifestyle. For example, you may find that your house payment is a larger percentage of your income that the tool suggests. Moving into a less expense house may be one option. Alternately, if your current house is a priority, reducing your standard of living in other areas may be the sacrifice you need to make to continue where you are currently living.

Those who have kept a budget appreciate the wisdom it provides, helping them make adjustments and smart lifestyle choices that will keep them on track to achieve their long term financial goals.

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We develop a budget every year at the start of the year and revise it every July (a mid-year update), and it's been one of the keys to our financial success. Why? Because it helps us track our spending in every area -- and controlling spending is the key to becoming wealthy. If you don't believe me, then consider the fact that millionaires become wealthy because they have budgets.

For more on the value of budgeting, see these posts:

• Why We Hate Budgeting - But Shouldn't

• Pretend It's Not a Budget: How to Create a 'Spending Plan' You Can Stick To

• The Benefits of You Need a Budget

Click here to read part 2 of this series.

Comments

[J Martin]

I just created my first budget with my paycheck from the 15th. I just did it on a simple Excel spreadsheet. I'm tracking every penny I spend. What an eye opener!!!

[FMF]

Good for you!!!!!!