Budgeting Basics: Are Budgets Really That Bad?

The other week I brought up the fact that it is Financial Literacy Month. After a few days one of the loyal readers of Studenomics emailed me to tell me that I have still not written any posts that cover the basics. I guess I got too used to writing posts that would interest other personal finance bloggers that I forgot to write about some basic concepts for young people that are new to the world of personal finance. One topic that I need to start covering more is budgeting. Today I will discuss the two fundamental features of a budget and tomorrow I will provide some budgeting tips and tactics.

A few tips to help you with your first budget:

Know your expenses

It’s obvious that stuff happens and sometimes we have to spend money that we had no clue we would be spending. Besides unexpected events we for the most part should have a solid understanding of all of our monthly expenses. This is probably the worst part of budget planning because you have to take a realistic look at where all of your money is going. To make things easier you should breakdown your expenses into two categories: fixed and variable expenses.

Fixed expenses- These are the expenses that you have every month no matter what happens. You have to pay your rent every month, you have to pay your mortgage, you have to pay insurance, and you have to phone your other bills (cell phone, cable package, etc.).

Variable expenses- This is everything else that you spend your money on. Anything from drinking, shopping, food, going out, purchasing new items- you get the point anything that is not a constant.

Plan your savings

We all have different savings goals and motivation for saving money. The trick is to set aside money for savings first when you receive your paycheck. If you follow the philosophy that you will go out first and then save the rest then I really doubt you will ever save anything. Savings come in all shapes and sizes- retirement planning, saving for a vacation, saving for a new car, securities (shares and bonds), real estate, and emergency fund. It’s obviously impossible to try to save for everything at once but it is crucial that you plan your savings based on your age and goals in life.

Are budgets really that bad? Not all but it’s a tough pill to swallow when you realize how much money you spend monthly and where the money is going.

Sorry if you thought today was a bit too basic but it is Financial Literacy Month and sometimes we all need to go back to the fundamentals.