Sense & Centsibility Blog

Out of the Nest Series: Budgeting

So you have graduated from high school, college, or have returned to your family’s home to save money and now it is time to spread your wings and fly! Simple, right? This is easier said than done. Yet, with some planning, your transition can become much smoother. As the adage states, prior planning prevents potential problems.

The basics to be covered in the next several articles in my "Out of the Nest" series include budgeting, establishing your new home, purchasing your first vehicle, and employment. Reaching these milestones require attaining life skills that take effort, as habits are not formed overnight. Don’t let that deter you though. Developing such skills will be invaluable to you for the rest of your life. There is no time like the present to start.

Let’s Begin With the Budget

Life is a reality check, quite literally, and finances are a necessary resource that can either be wisely spent or squandered. The wonderful reality is that you decide who wins - your finances or you. It is never too late to begin your financial path in the right direction.

What is a Budget?

Prudent budgeting basics can be defined simply as a plan to only spend the money you have. Preparing a budget begins with allocating your expenses into categories.

It is advisable to keep both a monthly and weekly budget. These budget numbers should be at the forefront of your mind for recall when you need it.

Building a Budget

A great way to maintain a budget is by using the cash-based envelope system. Every envelope represents a category, such as monthly needs, gas, auto repair, savings, etc. Keeping a written record on hand will help you maintain knowledge of the amounts needing to be placed in each envelope. A saved document on your personal computer is best, as you can modify it when needed and electronically file it with your bank, taxes, and other financial information.

Envelope System

At the beginning of each month, you place your earnings into each envelope for items you can pay for with cash. This system is an easy way to track spending, too. Once an envelope is empty, money cannot be spent for that category anymore for the month. This is why knowing how much you typically would spend per month is important. This system is ideal for a person working toward building a track record of a debt-free financial future, since everything is cash-based. When purchasing items with cash, there is no worry about accumulating potential credit card debt!

Tracking Expenses

You can also build your budget on an Excel spreadsheet and track your spending accordingly. A spreadsheet enables you to track your income and compare amounts you have spent from month-to-month. Using simple formulas like sum, difference, and average can help simplify your calculations. If you are not planning for an entirely cash-based spending system, using Excel or another form of a spreadsheet can help you keep track of your credit card spending.

Be wise when making purchases with credit cards, ensuring that your spending coincides with your budget. All credit card payments should be paid in full and on time to prevent interest accumulation. Interest is like wasted money; so don’t be late with your credit card payments!

For other budget ideas, read Pete's blog on The Secret to Starting a Budget.

Peace of Mind

A budget and proper follow through of the plan equates to preparedness. An automobile might need repair or a light bulb needs to be replaced. A budget enables you to have the money you need to pay for these costs as long as it's made a priority.

A budget also provides you the opportunity to plan for your future. In addition to being prepared for the necessary costs of living, a budget enables you to set a forward-looking plan to buy the car you’ve always wanted or invest in your dream home. This element of budgeting can be referred to as your savings fund. Although it takes time to save, the reward is well worth it. Every month, you can become more and more excited for the strong financial future you are building for you and your family!

Your Next Step

Taking the time to read this article, you have already begun heading in a positive direction. We are also here for you. Counselors at LSS Financial Counseling would also be happy to sit down with you to discuss your financial situation, options for paying off your debt, and/or achieving your financial goals. For a free financial counseling session, call us at 888.577.2227 or GET STARTED ONLINE at your convenience.

Written by Joy Rasmussen