SMS 130 – Budgeting Part 2 – How to Budget

Part 2: How to Budget

Developing a budgeting is a process,

  • Track your income and expenses
  • Develop income and expense parameters
  • Project future income and expenses.

First develop your expense tracking skills:

  1. Start with a smart phone app – automation is your enemy
  2. Develop the skill of tracking your spending for 3-6 months create 1 income category and 4 expense categories: Home, Living, Transportation, Other
  3. At the end of 3-6 months you should have a solid view of how you income expenses are flowing
  4. Divide your 4 expense categories into 4 sub-categories (drive behavior, facilitate decisions making)

Now you can begin to develop income and expense parameters

  1. Determine monthly income budget
  2. Use averages to determine monthly expense budget by category
  3. Zero based budget means you have to account for every dollar

Your budget has evolved to the point where you bring expense tracking and spending parameters together

  1. To account for every dollar you have to reconcile to your bank account
  2. Monitor your performance of your actual spending against your budget and make adjustments

You are now at the stage of financial planning where you can begin to see how you can achieve your financial goals

  1. Develop a spreadsheet to mirror your income and expense categories
  2. Input 12 months of historical data
  3. Project monthly income and expense by month for the next calendar year (previous, current, and next year)
  4. Project annual income and expenses for the next five years.

Home Budget App

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