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Your first budget in 3 easy steps

Don't be scared of budgeting; it's not all that hard

By Gary Foreman

The New Frugal You
New Frugal You columnist Gary Foreman
Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and newsletters. He writes "New Frugal You," a weekly Q&A column about frugal living, for

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Question for the expert

Dear New Frugal You,
I've never budgeted and it seems like a hassle, though having no money at the end of every month is a bigger hassle. I've decided to bite the bullet and do a budget. Where do I start? -- Tired of Being Broke  

Answer for the expert

Dear Tired,
The first thing you should do is take the bullet out of your mouth. It's bad enough we have to clean up one mess (financial) without risking a scene from a horror movie. I can see the previews now: "Return of the Debt Snatchers 13: How bloodsucking debts consumed my life!"

The reality is that a budget is not a financial straitjacket. You're not tying your hands (or your credit cards) behind your back. That's not it at all.

All a budget does is tell you whether an expense was planned and if you can afford the purchase. Then you can make a decision with all the information involved. Living without a budget is a little like saying: "I have a decision to make ... Don't confuse me with the facts!"

In fairness, most of the software and budget systems are overly complicated. It's no wonder that people flee from them like they would from a hockey-masked fiend carrying a bloody chain saw.

The truth is that a budget only needs to answer three questions:

  1. How much income do I have to spend?
  2. How much am I spending?
  3. Am I spending more or less than my income?

Most of us can answer the first question by looking at our most recent paycheck. How big was the check? When will I get another one like it? (Now that wasn't painful was it?)

The second step is a little more difficult, but no blood will be shed. You'll need to keep track of your spending. Just stick a piece of paper in your pocket and make a note when you spend money (cash, debit or credit card). Total all the expenses.

It appears as if you have already answered the third question. You're spending more than your making.

But how much more is important. If you are just a little short at the end of the month, you're dealing with a flesh wound. A bandage will fix it. In that case, you'll want to look at where you're spending money and find a few dollars that you can avoid spending. It can be as simple as not buying popcorn at the movies.

If you come up way short, you'll need to take immediate action. A wound gushing blood requires a tourniquet or the victim will bleed out (with the appropriate scary music playing in the background). Anything beyond $50 or so a month will likely require some slashing of your spending. You might even need to consider whether you can afford some of your bigger financial commitments (car payments, rent or mortgage).

Finally, nothing says that a budget has to be for a whole year. You can just as easily budget for the week or month. All you need is enough time to get a feel for the balance between your income and expenses. When you finish that month, make a plan for your next month.

Now aren't you glad that you decided to face that big, bad scary budget? Turns out that you didn't have to walk through that old deserted graveyard alone after all. Just had to collect a little info and make a decision or two.

So now that it's safe again, let's relax and kick back awhile. Let's catch a movie. Maybe something directed by Tobe Hooper, Sean Cunningham or Alfred Hitchcock ...

See related: 
How to handle a monthly budget stretch, Cutting back on spending? Go BIG!

For more than 35 years, Gary Foreman has worked to help people get the most for their money. Prior to founding The Dollar, he was a financial planner and purchasing manager. Gary began The Dollar Stretcher website and newsletters in April 1996. Today the website features more than 6,000 articles on different ways to live better for less. Gary has been interviewed by The Wall Street Journal, The Nightly Business Report, USA Today, Reader's Digest and other newspapers and magazines. Gary answers a question about a budgeting or saving issue from a reader each week. Send your question to The New Frugal You.

Updated: February 2, 2012

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