Budgeting tends to be a consistent area that people struggle with in their personal finances, whether or not they work with a professional adviser. In my experience, I've found that one of the primary stumbling blocks along the way to a workable budget is the desire to work backwards.
there is a logic to the order
The first step to developing a budget is to identify current spending, but too often we start by trying to justify our spending. What's the difference?
To be clear, there is no judgment here about each person's justifications, but rather a suggestion that building a budget backwards by justifying current spending and wants will often lead to an overspent or under-considered budget.
But approached the other way, with a clear picture of where the money is going each month, which categories get the most and least money, and what patterns are apparent, you now have the ability to single out which items most need to be justified, and what it will take to make it fit the overall budget.
how to begin?
There are tons of apps and worksheets and systems out there to help people with budgeting, but my absolute favorite and most simple option in the days of electronic banking and online credit card accounting is to download your spending history directly from your bank and credit card companies in a spreadsheet. They will most likely have things grouped in categories already, but it is a simple thing to add a new column and sort your stuff into groups you find useful.
I recommend starting with no more than four to six categories and putting every line item into one or another.
That's where you start!
David R Wattenbarger, president of DRW Financial
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