Budgeting basics

If the word “budget” makes you tense up, you are not alone. A lot of people have tried budgeting, found it stressful or rigid, and quietly given up. This guide starts from scratch, with no assumptions and no jargon.

What a budget actually is

A budget is simply a plan for your money. It answers one question: where is my money going to go this month? That is it. It is not a test, and it is not a judgment on how you have done in the past.

Budget or spending plan?

You will hear both terms. The difference is small but it matters. A traditional budget often looks backwards, tracking what you spent. A spending plan looks forwards. You decide what each pound is for before the month begins, then track how it goes. Many people find the forward-looking version calmer, because it puts you in charge.

How to start when you do not know where to begin

1. Write down the money coming in this month.
2. List your regular bills and fixed costs.
3. Subtract the bills from the income. What is left is what you have to plan with.
4. Give the rest a job, groceries, travel, savings, a little for fun.

That is a complete first plan. It does not need to be perfect. You will adjust as you learn.

Common mistakes, and how to avoid them

• Making it too detailed. Start with a handful of categories, not thirty.
• Aiming for perfection. A plan you actually use beats a perfect plan you abandon.
• Treating a tough month as failure. Overspending in one area is information, not a verdict.

When you are ready, SpendSquirrel can hold all of this for you, so you always know where you stand.