The first step in gaining freedom from any past and future money problems is to determine where you are right now, what you know about your money and what you don’t know. No one is born knowing how to create an effective budget. It must be learned. A very few people are born wealthy and they never worry about money. But for the vast majority of us, we must learn how to control our spending so we will have money “leftover” to save and invest for what we want. Leftover money is the basis of all budgets. The reason we plan a budget and live on a budget is to create money that is not spent, but saved. Regadless of your income, you need a budget. Can you imagine a business operating without a budget? Can you imagine a government agency operating without a budget? It would be impossible.

The same is true for operating your personal and household business. Without a good working budget for you and your family, you will not achieve your financial goals. In our consumer society, it is just too easy to spend money on things you really don't need. We will do this all the time without a good budget to guide us in our spending. In order to avoid this excess spending, it's time to get serious about preparing that personal budget and household budget. You know you are ready for this. So, over the next 3 pages I am going to give you some detailed instructions and easy tools to get you started on your personal and household budget, as well as begin a true saving plan that will work for you. Stick with me and I promise you will become financially stronger than you have ever been before.

So our goal is to maximize our leftover money each month. To do this, we must spend less than we make. (A pretty simple idea, but sometimes hard to do in real life.) A personal budget or household budget is designed to do just that, create leftover money. But you can’t do this until you keep track of what you make and spend. This is the basis of every family budget. (Note: I use the terms household budget and home budget and family budget to mean all of the spending in one house. Each family member must have a personal budget which combined with everyone creates the household budget.)

Step 1

Begin by getting your information together. You are going to create a household budget but you have to know what you make and what you spend. Gather your last three months of pay slips and bank statements. Print out the blank monthly personal budget worksheet page. You might want to print at least two or three of them for each family member. Then start filling in your monthly home budget worksheet using the average of what you spent over the last three months for each of the categories listed and for each family member. Then insert the lowest amount you were paid for each of those months. For example, if your pay was $2,000, $2,200 and $2,400 for the last three months, then you would use $2,000 as your pay figure. Use a little common sense in this. Usually people are paid the same amount each month, so just use what your normal monthly pay is. Another example, if your electric bill for the last three months was $50, $60 and $70, it would be okay to use the average of $60 as the monthly expense. 

Remember, you are just checking what you have been spending, not what you intend to do. This first worksheet is just to determine where you are now in your spending patterns. Add more categories if you have other expenses that are not listed. Just be sure to list everything.

Worksheet Tips:

Finding out what you are spending now is critical. If you know in your heart that you spend all that you make each month, then adjust your family budget expenses until the total expenses equal your total income. Be fair to yourself and don’t fudge.

(Note: This step in the budgeting process is the most important one you will make. Sometimes it is a real eye-opener to find out what you have been spending your money on. The more time you spend on getting your past spending patterns fully documented, the easier it is going to be to adjust them to start saving more.)

Now take a hard look at what you make and what you spend. Discuss everything fully with your spouse and kids (if the children are old enough to understand). you must get agreement from everyone that they understand the purpose of the budget and that they will stick with it.

	I can do it later when I am making more money or after I get a raise.
	I just don’t seem to be able to set anything aside.
	I’ll keep working as long as I have to, no matter what.
	It takes all I make now just to get by.

Sound familiar? You are not alone. Nearly everyone I talk to about budgeting says one or more of the above when I ask “what is stopping you”? 

Let’s now ask another good one. “If you could save and invest, what are the things you want to save and invest for”? Here are some more typical answers:

	I want to own my own home.
	We need a new car.
	My kids will need to go to college and I will need money for that.
	When I’m too old to work, I will need more income than social security.

Think about those questions and answers very carefully. Now answer them yourself and write your answers down. Put those answers somewhere you can read them first thing every morning from now on. These are your goals and you can obtain them with an organized household budget. I promise you this will work for you if you only try. To help you in setting some goals and keeping track of them, I have created a goal chart you can print out.

Step 3

You are now going to become one of my “contractors”. Weird thought isn’t it? Here is how I work. I am going to hire you (pretend) to manage a project I am doing right now. Your job will be to manage the Budgeter (insert your own last name) household’s finances for me. I will give you a certain amount each month to pay expenses (this is your total income). You must pay all normal and necessary expenses to make the household run. This is not your money anymore, it is money I am giving you to run this business (we are still just pretending, but think this way). And this contract runs for the next three years!

Now like every contractor, the only way you can survive is if you spend less than what the contract says you will be paid. This contract pays you your monthly income. You must spend less than that. I expect you to only spend 90% of what the contract says you get each month. Remember this is not your money anymore (still pretending. I don’t want to get into a lawsuit!) You work for me and it’s my money you are spending. Don’t waste it. I will not raise the amount you are paid, so the only way you can make it is to have a good household budget. Run your household budget as if it were a business. Your contracting business. And the business goal is to save as much as you can from the amount you are being paid.

I expect you to save at least 10% of what you get paid. If your “contract” equals $2,000 per month, then you can only spend $1,800 per month. You must save at least $200 per month and put it in a savings account at your local bank or credit union. Treat all the money as if it were mine, not yours. Start looking for ways to save so you will have more of the contract money leftover each month. Can you see what we are doing here? By playing this pretend game of contractor, you start to think of your money in a different way. You must start saving so you won’t look bad and lose the contract. Pinch every penny just like a real contractor would do. Those savings you make every month are going to get you to your goals.

Step 4

Time to begin filling out another blank personal budget worksheet. The income will be the same as what you filled in for what you are making now. But the expenses will change. If your income is $2000 per month, then your expenses cannot exceed $1800 per month. Go ahead and put $1800 in as the total expense at the bottom.

Now begin completing each expense category based upon what your are actually spending now for all those things that you know you have to pay each month like rent or house payment, car payment, utilities, etc. These are things you cannot get by without. But that leaves a lot of expenses that you can do away with. That coffee every morning and that soda or snack at work everyday could easily be $50 or more per month. Eliminate them and you have freed up that much leftover money. 

Be creative. Find expenses that you can do without. Do you spend $6 or $8 every week on a paperback book to read? Hey, get a library card. They are free and the library probably has the books you want. There’s another $25 a month.  Look really hard and I can guarantee you that you will find enough expenses you can do without to probably more than make up that $200.  And be sure to start using my money saving tips.

Just make sure you complete the new household budget worksheet with everything you can think of. Make sure the total of expenses is no more that 90% of your total income. In this way, you will begin saving 10% (or more if possible) of your total income. Remember the purpose of any household budget, home budget or personal budget is to create leftover money. I know I'm being brutal about this, but as my contractor, I know you can do it. By the way, I have an entire section on saving & investing that includes a lot of information and a basic savings plan. Get on a savings plan and stick with it. This will help you stay on your budget plan because you will immediately start seeing that leftover money (savings) grow to substantial levels. I highly recommend ING DIRECT for a really great insured online savings account. It's one of the best places I've found to start a basic savings plan (and I've checked out accounts from all over the country). You can open an account in less than five minutes and believe me, they have a history of paying very high rates for this type of account.

Step 5

You must have agreement from everyone in the home that they will do their part to stick with this new budget. And you must keep up with what you spend. Many people find it wise to get envelopes to put their personal money in. One envelope for each week of the month. Put $20, $40 or whatever in each envelope and use only one a week. Don’t dip into next week’s envelope until next week! JUST SAY “NO” TO UNNECESSARY EXPENSES!!! 

Now you must keep your family budget updated. Daily updating is best, but it is hard to do. Every person must keep a list of everything they spend. This is important so you don’t miss something. Have everyone write down at the end of the day how much they spent and on what. A simple little notepad is all that is needed. I have included a weekly individual expense record if you want to use it. Print as many as you like. 

Get a calendar with big squares for each date. Hang it on the kitchen wall and enter the total spending for each category for each day for each family member. I know this is not going to be easy, but it is very important. It is the only way you are going to keep up with what you spend through the month and know where you stand with your money all the time. Living on a budget can only happen with accurate and up-to-date information. I will be happy to send you a simple spreadsheet budget tracker if you want it. Just go to my tracker page for quick instructions on getting the spreadsheet by email as a file attachement.

If this is becoming a bit overwhelming, don’t worry. Everyone feels that way when they first start budgeting. You must resist the temptation to "blow all of this off" and do it some other time. And don't fall for all of the "get rich quick (or otherwise)" schemes you see all over the place. That is not how you create leftover money. Leftover money comes from creating a comprehensive budget. Now stick to the budget you have created. Let nothing get in your way. This is the key to getting the things you want out of life. The free master budgeting email course can help you understand all of this even better. It is in 5 parts, is very comprehensive and is really free with no strings attached.