To many, the word budget often has the feel of a four letter word. What comes to mind is deprivation, lack, and constraint. Yet as we’ve seen throughout this economic crisis, those who have a budget and clear picture of their inflow and outflow are the people who have landed on sound financial footing at a most challenging time.

My personal relationship with budgets has been kind of odd. While I track every penny that comes in and goes out and I am diligent about reviewing this information regularly, I honestly can’t say I have a bona fide budget. Or at least not as I think of a budget – a chart that literally maps out how much I can spend by category each month. For my business I have income and expense projections, but I am not sure whether that truly constitutes a budget or not. My budget has been a more fluid dance with expectations, actual spending, and an ongoing desire to regularly review, adjust, and save where I can.

As you can see…even a financial savvy coach like myself can get caught in the trap of the semantics of budgeting. No wonder so many people avoid it like the plague. That is why in this article I plan to give you some tips on how to create, stick to, and evaluate a budget.

The hardest step is that first one. So, where do you start? Keep the process manageable. Take a peek at the Motley Fool 60-Second guide to Budgeting. The good news with budgeting is you get to start right where you are. No fancy math, no mysterious budgeting algorithms, you simply start with assessing what you earn and what you spend each month. This process will either take a little or a LOT of work depending on how diligent you have been with tracking your income and expenses. I created quite a stir a while back when I asked the question “Do You Balance Your Checkbook?” so it just goes to show that that not everyone is as detailed as I am when it comes to tracking and reviewing finances.

The article “20/10: Debt Free Series: How to create a budget, Rethink Necessity and Be Thankful” shares my take on budgets as a tool that frees you up rather than ties you down:

Based on my experience, I associate budget with the word freedom. I associate the word budget with peace, and knowledge.

And, when you’re feeling overwhelmed by the state of the financial markets, the bills you have due, or even just the task of budgeting, take this article’s advice and remember to be thankful:

Be thankful for everything you can afford.

This is something that I think is vitally important. Be thankful for everything you have, and everything you can purchase each month. You may have had to cut your cable and started using the library, but be thankful that you can use the library! Be thankful that you can pay all of your necessities. Be thankful that you are taking control over your future. You are gaining knowledge that will help you throughout your financial life.

Besides your income and expenses, it is important to know what your goals are. What really matters to you? The same household with the same income may have radically different budgets depending on what you are trying to accomplish. A Frugal Housewife gives us insight into this in “How to Create a Budget”

Another thing to consider before you start creating your budget is your goals. Do you want to save for a down payment on a new house? Are you working to reduce your debt? Is your main goal saving for retirement? Your goal or goals will help you determine how your money should best be budgeted. They will also help you determine what amount of discretionary expenses you’re comfortable allowing. If your savings goals are longer term, you may be willing to save a little less and let your nest egg build slowly. If your savings goals are short term, you may be willing to sacrifice a little more in the short term in order to meet your goal.

She also segeue’s nicely into the next step in the process — reviewing the budget.

Once you’ve developed your budget, try it for a month or two. Remember that a budget is just a guide, and that it can be tweaked to suit your needs and lifestyle. The goal is to put together a budget that you can live with, so don’t be afraid to build in a few small treats and luxuries.

A budget is a tool. It is a living, breathing document as they used to say in Corporate Speak (which always spooked me just a little bit I might add). What that means is it is not a once and done task. Budgeting is not an exact science. It is a guide and through trial, error, and conscious choices you will refine it at least annually if not quarterly or even more frequently.

So, how do you review your budget? Much the same way you created it. Take a look at what your budget figures were for each month and then enter your actual expenses next to it for each month. The difference is your budget vs. actual figure. If you are under-budget – great! If you are over-budget all is not lost. You can do this sort of analysis fairly easy using a spreadsheet. Simply do some quick math and see how over/under you are. Then ask yourself the hard questions:

  • Do I see a pattern?
  • Was my budget unrealistic or did I simply blow it?
  • What were the unexpected or emergency expenses and was I prepared with an emergency fund to handle them effortlessly?
  • What changes, if any, do I need to make to the budget to make it realistic, effective, and sustainable without feeling like I don’t get to enjoy a single dollar I earn?

Consider budgeting a tool to empower yourself with. There is no right or wrong answer. The most important factor is that you take the time to actually do one. It is truly the only way to know the hard and fast figures of your financial reality.

Do you budget? Any tips, techniques, or scintillating stories you can share?

Paula Gregorowicz, owner of The Paula G. Company, offers life coaching for women who are ready to create their lives and businesses in a way that fits who they are rather than how they were told they “should”. Visit her website at www.thepaulagcompany.com and get the free 12 part eCourse “How to Be Comfortable in Your Own Skin” and start taking charge of your own success.