Building Your Budget

The pain of budgeting can come from two sources: the time and effort needed to start and maintain the budget, and the financial sacrifices that may be necessary to put the budget into force. We wish we could say that you'll be able to reach all of your personal financial goals without making some current sacrifices. This would be nice, but it's probably not possible for most of us. If it were so easy, everyone would have attained financial security.

A personal budget, or spending plan, is a tool to help you to reach your personal financial goals. It is an organized way to compare income and expenditures over a relatively short time frame (a week, month, or a year). It should allow you to forecast your income and expenses, monitor your progress, and make changes as needed to achieve your goals.

A personal budget means different things to different people. At its most informal, someone might think of a budget as merely living within one's means. That is, if you haven't completely run out of money by the end of the month (or whatever measuring time period you use), you have stayed within your budget. While we are all for simplicity, such a "budget" is really no budget at all, because it doesn't give you any information about where your money went, and it doesn't provide the structure and discipline conducive to making changes where necessary to reach your longer-term goals.

Whatever the form your personal budget takes, it should give you a detailed picture of how money comes to you, and how you spend it, within the reporting period you choose. We recommend that you choose a reporting period that gives the most accurate picture of your financial cash inflow and outflow. For most of us, this is monthly, since the majority of personal obligations are usually billed monthly. After you've selected your time period, you're ready for:

• Budgeting Income: Many individuals who set up personal budgets only look at the cash outflow (payments), but we strongly advise you to closely monitor your personal income as part of the budget-creation process.
• Budgeting Expense: Although many would agree that scrutinizing personal expenditures is a necessary part of a personal budget, setting up and maintaining control over expenditures is often what you'll find most difficult and tedious.
• Budgeting Tools: Finally, you can match your income with your expenses and see what needs cutting back, or where you need to make increases.