Assuming you’ve read my post on the importance of keeping a budget, you’ve probably considered setting one up if you haven’t already. But sticking to a budget can seem daunting, or at least boring. So you might consider a simple budget. On the other hand, maybe you’re interesting in tracking every purchase and seeing where all your money goes each month. Here are a few of the benefits and shortcomings of a simple vs. a detailed budget so you can decide which is right for you.
Why You need a Budget
A budget can be beneficial in that it helps you live within your means, save more, and pay off debt. It can help you make better decisions with your money and get closer to your financial goals.
A Simple Budget
The benefit of keeping a simple budget
To make a simple budget, list your monthly income and your expenses. You can categorize them to make it simpler. This might include necessary items such as home and auto (rent, utilities, car insurance, gas), groceries, healthcare (health insurance, doctor visits, and prescriptions), and family (child care, education, etc.). Include extra items which might be categorized as entertainment (eating out, subscriptions, travel) and a miscellaneous category (personal care items, clothing, and more). Include your debt payments and what you are putting into savings. You may also want to include donations or tithing. The amounts don’t need to be accurate down to the penny nor do you have to list out every single purchase. You can use round numbers to get a general sense of your spending for each of the categories. But realize that this will not be as helpful and illuminating as a detailed budget.
A Detailed Budget
The main benefit of a detailed budget is that it gives you a more detailed analysis of your spending. This makes it easier to see in which categories you need to make changes as the information is more accurate. Over time, you’ll see trends in spending. You can use your budget to plan your savings and estimate what you can afford or how long it will take to save up enough to reach your goals. Likewise, you can plan paying off debt and estimate how long it will take to be debt-free.
The shortcoming is that it is a bigger time commitment to enter every dollar spent. You might find it hard to find the time, or interest, to fill it out each month, but it can be worth the effort. Once you initially set it up, it will be easier to update each month.
To make a detailed budget, start by listing all your monthly income. Next list your expenses. This might include items like rent, utilities, groceries, insurance, eating out, entertainment, personal care items, clothing, and a miscellaneous category. Include your debt payments. This might include credit card payments, car payments, and student loan payments. Include what you are putting into savings. An emergency fund should be a priority, set aside enough to cover 3 to 6 months of expenses. Also aim to save at least 10 percent or more of your annual income for retirement. You can also list specific things you are saving up for. This will help you calculate how long it will take you to save up the money or if you need to trim spending in other categories in order to save enough. Gifts, donations, and tithing is important. So don’t forget to include that in your budget.
Which is Right for You?
When you have a budget, you can more clearly work toward your goals, whether that is to pay off debt, save for retirement, or just get a handle on your spending.
It might seem overwhelming to commit to tracking every dollar or you might be afraid of what you find out when you crunch the numbers. But when you give it a try, it will soon become second nature and it won’t feel like a restriction, but a guideline. Your earnings, saving, and spending will no longer be a mystery. With a budget, you’re in control.
Download your free budget template and get started on your budget and get in control of your finances today.