How to Create a Good Budget

No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.

Having a budget doesn't stop you from spending money the way you want it to, but works like a partner to track your spending and allocating resources to help you reach your financial goals.

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

The principles that make a good budget, something you can stick to:

• Being Realistic: Being too strict is a recipe for failure.
• Making Adjustments: A budget is not set in stone, but a fluid thing.
• A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
• Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
• Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

Follow these simple steps and start Budgeting:

• Choose the right tool (Budgeting App, Excel sheet or Envelopes)
• Gather all information like your bank and investment account numbers, user id's, and passwords.
• Make a list of all your income sources and all your expenses.
• Share the important financial and budgeting details with your partner or spouse if applicable.

It breaks down your budget categories into three broad segments:

• 50%: Essential Expenses like housing, automobile expenses, groceries, insurance, utilities, etc.
• 30%: Discretionary Expenses (Non-essential) like Dining out, entertainment, drinks, etc.
• 20%: Financial Goals including mortgage, home, and educational savings.

If there is heavy credit-card debt, the financial goals should be 30% and non-essential spendings only 20%.