The Motley Fool

60 Second Guide To Budgeting

Do you get a shock when you receive your credit card bills at the end of the month?  Or when you are withdrawing money from the ATM machine, and surprised at the miserable amount of money left?

You could be suffering from the Lack-of-Budgeting Syndrome, a malady that can affect anyone who regularly runs short of money in the bank.  This syndrome can affect anybody regardless of income, and some of the other symptoms include sleepless nights, high blood pressure, fits of guilt, and denial.

The cure is simple, but it isn’t easy. Putting together a workable budget takes time, effort, and discipline. But it doesn’t take long to get started on the road to fiscal responsibility. Spend a minute and learn the ins and outs of getting your budget under control:

0:60 Make an educated guess

Before you get started, make the process more suspenseful and fun by jotting down how much you think you’re spending on food, entertainment, travel, clothing, charity, investing, etc. Then record how much you want to spend on them. That’ll put everything that follows into perspective.

0:54 Look at your past spending habits

This is where it starts getting tough. Look back at your bills over the past few months, and identify where your money went. Don’t worry if you can’t account for everything you spent — that’s typical, and you’ll catch that in the next step. For now, just look at what you’re spending all your money on. If it’s mostly going toward payments on bad debt — things like credit card bills or car loans — then you’re starting out every month on the wrong foot.

0:46 Start gathering information

It sounds simple, but it takes a lot of work: For one to three months, record all your financial inflows and outflows. (One month will do, but a few more will maximise accuracy.) Be sure to account for big expenses that may not occur every month, but can be substantial and crop up with some regularity, such as road tax, property tax, or insurance payments. Jot down how much they amount to per month. During this two- or three-month period, save every single receipt you get for any expense. If you don’t normally ask for or keep receipts, do so during this period. Also, carry a small notebook to write down any cash transactions. Even if it’s just breakfast from Toast Box each morning, record the transaction.  Smart phones are another great way to account for these transactions and many apps have been developed for this purpose.

Make sure you’re accounting for all your expenses. Even a $12 cheque written for a magazine subscription should be counted. As you’re classifying expenses, notice that some of them are fixed, while others are more flexible.