Financial Fitness – Budgeting Basics

Financial Fitness – Budgeting BasicsFor most of us, getting our body into good physical shape requires an effort. We have to exercise, eat the right foods, and the input from a professional, such as a personal trainer or a nutritionist, can help us achieve a healthy physical body. It also takes a commitment over time to get into good physical shape – eating right and doing exercise for one day will not result in a physically fit body. These same principles apply to financial fitness. To be financially fit, we must follow a healthy financial diet, and be committed to our financial health over a period of time – saving $100 one time will not leave us financially fit. Financial fitness involves different components. Some financial fitness components include having money saved for short term, midterm and long term goals; and being out of debt, or having a plan to get and stay out of debt. One very important financial exercise that will help us become financially fit is budgeting.

What is budgeting? It is a very simple financial fitness exercise that is typically defined as the listing of all planned expenses. It can be seen as the plan a person, family, or organization puts together to determine what spending will be done and what money will be assigned to savings. The budget can be done for the month, or a more detailed version can be made per week. A budget is simply a plan that is shown by way of money. For individuals and families, budgeting is simply defined as the money they have coming into their household, by way of a monthly income, versus the money that goes out of the household, by way of planned expenses, such as a mortgage and car payment.

Why is budgeting an important financial exercise that is needed to achieve financial fitness? Budgeting is one of the fundamental tools of a sound financial fitness plan. There are many reasons why we need to have some type of financial budget in place. Some of the main benefits of a budget are that it allows us to see where we are going with our finances, and if we are on track to reach our financial goals. By evaluating our budget, we can determine if we are on track to meet our financial goals, if we need to change our financial path, readjust our plans or goals, if we are overspending, and it helps us take control of our money. The process of evaluating our financial situation through budgeting allows us to understand where we are, and how to move forward. If we are unaware of issues with our money, we may go down a destructive financial path. With regular reviews of our budget, we can “catch” situations early enough to avoid financial crisis. It helps us to be organized with our finances, and also creates discipline with our money. It can also be used to evaluate how much we have in savings, and determine ways to increase saving, as well as determine the amount of debt we have and what type of debt it is.



Setting up a budget is a very simple exercise that must be revisited at least every 6 months. A budget is not a onetime exercise that just sits stagnant in the top draw of your work desk, because expenses do change over time. And as your financials change, your budget must be updated accordingly. For example, over periods of time, debt will be paid off, which will change the outlook of the budget. These changes must be evaluated, and the budget must be updated accordingly.

A budget can be an all-inclusive, comprehensive plan that covers your monthly income and expenses, or it can be broken down into weekly income and expenses. Budgets can be a very simple depiction or a very in-depth look at your income versus expenses. And they can be made into one comprehensive package, or they can also be divided and separated into mini-budgets, where each mini-budget represents a major area of your life. For example, you can create a budget for your household; for major events coming up in your life, such as a wedding or a vacation; for retirement; for your pets; for college; and much more. Creating a budget involves two major steps: Step 1: Looking at your income; and Step 2: Evaluating your expenses. For this example, we will develop a comprehensive monthly budget.

Step 1: Income
The first step to creating a budget is knowing how much money you have coming into your household on a monthly basis. For some, your income is fixed each month, while others have a varied income. Take the last 3-6 months of pay stubs that you have received to know the amount of money you bring home after taxes. Income can also include money you make from investments; any income earned from bonuses; and miscellaneous sources of income.

Step 2: Expenses
Step 2 is identifying expenses. This will involve you making a detailed list of the money you are spending each month on your expenses. For your expenses, it may be beneficial to divide them up into categories. For example, Home and Utilities: Rent/Mortgage; Renter’s Insurance; Home Maintenance Costs; Water; Power/Electricity; Gas. Auto: Car Note; Insurance; Gas; Maintenance. Debt: Credit Cards; Student Loans. Entertainment: Cable Television; Eating Out. Groceries: Grocery Shopping – weekly and monthly. Medical: Prescriptions; Doctor’s co-pay. Investing/Saving: Dollar amount per pay check that you save for yourself.

Attached is a simple example (Word filePDF file) of how a budget can be created in a spreadsheet program, such as Excel. The sample budget serves as a general example, in order for you to have an idea of what a budget can look like. It shows a family that includes a single mom, two children, and a dog. For your personal situation though, you can adjust the budget accordingly, making it as general or as detailed as you like.

Action Step for Budgeting

The most important step for Budgeting is the Action Step. This is where you put into practice the knowledge you just acquired. The Action Step for Budgeting is to decide today that you will not go to bed without creating a budget. Most people never put a plan together, because they are waiting for the moment when they have the perfect plan. A plan, any plan, is better than no plan at all. And it is time to take action today. Spend time before you go to bed listing your monthly income in as much detail as possible. Then begin the process of identifying your monthly expenses, by breaking them down into the different categories listed above.

Article by Lisa Sehannie

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