Financial Planning Basics – Step 3 Budgeting

This is the fourth post on basics of financial planning, if you have missed the first three posts you can click on the links at the end of the post.

Budgeting is a very basic and important part of personal finance, is it a must for financial planning? Some say yes others say no, I believe at least some sort of budgeting is important. In step four of our financial planning journey you will set-up a monthly budget, so you can figure out where your money goes and where to cut down when needed.

Why should I budget?

Often I have worked with individuals and families complaining about not knowing where all their money goes, in step one I suggested keeping track of your spending habits for at least one week, I hope you completed this exercise if you have not I strongly recommend you do. Every time I had asked anyone to do the exercise they have come back astonished with all the little things they spent money on and didn’t realize how much it all added up to. When you don’t plan your spending, you can very easily over spend on things you never intend to and end up with no extra cash. Budgeting can help you plan your spending and keep track of your cashflow, this will enable you to plan your finances much more efficient than just random guessing.

How can budgeting help me?

Budgeting will give you a strong sense of your expenses and spending habits, this will enable you to plan your finances more efficiently. If you know where your money goes and how much, you know where you need to reduce spending to reach long-term financial goals. You will be able to set realistic financial goals and look at your budget when you need to cut down on things.

How to keep track? Budgeting Software?

There are many good software out there you can use to help you with your budgeting two popular ones are:

Quicken

Microsoft Money

Each software has its own advantages, frugal trader has a review of two above mentioned software on his blog.

You can also use a simple spreadsheet for budgeting, Google Documents has a straight forward budgeting spreadsheet.

I personally use an excel spreadsheet for my personal budgeting and it works well for me, my current situation is fairly simple and easy to track as things get more complicated I will probably switch to a more sophisticated software.

There is no need for complicated budgeting process and budgeting does not have to be a bad thing, it’s an important tool used in the financial planning process. Either download one of the above mentioned software or use the Google spreadsheet and set up your budget, it may take sometime to set it up properly for your situation but well worth the time.

Financial Planning Basics- Guide To Financial Planning

• Intro: Pre-Work to step 1
• Step 1: Balance Sheet, Networth and Cashflow Statement
• Step 2: Financial Planning Basics-The Financial Pyramid