The budget is a foundational tool that is absolutely critical to handling money effectively. It’s time to dig deeper into the basics of a budget.  There are three main components of building a working budget:

• The first component of a budget is to forecast your income.  Remember, we are working on building a zero-balance budget meaning we want to “spend” or allocate ALL of our money on paper before the month begins.  So, we first need to add up how much money we have to spend! Consider this your offense.  I’m a washed-up athlete, so I apologize for the analogy.  Back when I was playing college basketball we wanted to score at least 100 points a game.  If we did that, chances are we would win.  The bigger your income, the more ammunition you’ll have against your opponent (debt). This part of the budget acts like a funnel.  During any given month you may have money floating-in in all sorts of forms: paychecks, bonuses, refunds, gifts, personal sales.  I want ALL of those monies accounted for on the budget.  Why, because this is your OFFENSE.  I want that number as BIG as possible.  Meaning the more you will have to allocate for saving or paying off debt.

• Secondly, list out all your expenses and estimate costs.  The first component of a budget is forecasting your income.  Remember, we need to know how much money we have to spend for this second component – estimating your costs. Every good offense needs a good defense.  Consider this part of the budget your defense!  List out all your expenses in categories and estimate how much you plan to spend.  If you’ve never done this before, it’ll be very tough at first. List categories out in order of importance.  Remember to start with the “four walls” -shelter, food, transportation and clothing.  These must be taken care of FIRST!  If you have a variable income, this is extremely important.  Then whatever you have left will filter down through the categories.Once you done this, total you costs and compare to income.  Hopefully, you have more in-coming than you do out-going.  But wait, I thought we were supposed to “spend” ALL of our money? Yes, that’s right.  Whatever is leftover will go into another category – either “debt payoff” or “saving”.

• Lastly, track your spending.  Often, this is where many people fall off the wagon.  They forecast income and estimate costs but then do nothing.  That doesn’t work!  Tracking your spending throughout the month can be a bit tedious, but gravely important to a working budget. I use Excel to budget.  It’s simple. One tip is using the “Auto-Sum” function.  It’s the funny-looking “E” in the toolbar.  After you click this button, click and drag across the cells you want Excel to add-up for you.  Once you’ve set this function, whenever you input numbers into those cells, Excel does the calculation for you…very useful when adding up income(s) and total monthly costs. Another tip is to put an equal-sign (“=”) at the beginning of a cell when you’re tracking your spending.  Excel with then automatically add up every number when separated with a plus-sign (“+”). If you enter “=34.53+82.21+23.34+45.32”…185.40 will appear in the cell.  Again, Excel will do the calculation for you if entered in this manner. Click here to download a Starter Budget using Excel.  Happy budgeting!