Your Budget Part 2

Continuing from the last blog, we are going to go over the next step in the budget building process. Formally, it’s referred to as a balance sheet. We are going to take the concept of a balance sheet as our model, but not require such a rigid accounting. The first step is to determine what your expenses are. You need to create a clear picture of what you are spending if you want to create the framework for what you should be spending. Make categories that make sense to you, and see where you are spending. For instance, you will probably have a grocery category, but you may want to break that down further and separate household items. The level of detail is up to you. Do you want to know specifically what you are spending at the coffee shop, or just have an eating out category? Based on habits you are aware of, you may have very specific breakdowns in some areas and broad categories in others. The results will be surprising. I promise you are spending more on some things than you think. On the flip side, there might be an area or two that you are spending less on than you thought. Also make note of the money that you have coming in. Let’s see how earnings and expenses stack up. An easy way to get started on creating categories is to print your most recent bank statement. Organize every transaction for the month into a category. This will give you your broad categories, and you can decide whether to break those down further or leave as is.

The next step is to go over your spending and be honest with yourself about how it makes you feel. Are you comfortable with what you’re spending? Are there areas where you would like to spend less? Do you have to cut back because you are spending more than you are making? Do you have a lot of savings that needs a place to go? What were the surprises? 

Once you have all that info what do you do with it? How do we create the budget? How do you determine what you should be spending on all the different categories? Should your budget categories be different than your expense categories?  These questions are unique to you, and should be answered through the context of your goals. I can help you with that.