MONEY COMMENT
Learning How To Budget

By Jane Mack (TMFJane)
September 23, 2003

I can't remember ever being taught how to budget. Most of us probably aren't and I suspect that if we've learned how to manage our finances then it's probably been through a process of trial and error.

So how do you learn to budget? It's all very well saying that you shouldn't spend more than you earn but that's hardly helpful if you want to borrow money to buy, for example, a big item such as a car.

For a start you can't operate on a budget if you don't know where you spend your money. So a good move is to write down a list of all your essential outgoings such as rent/mortgage, council tax, utility bills etc. Make a separate list of any loans or credit card debts you've got.

This is only the start though. You'll end up with a list of what all these cost but you still won't know where you actually spend other money. For this reason it's also a good idea to keep a diary of your spending for a month. After all, you've probably taken money out of the cash machine and then wondered where it's all gone before. You can see how to do it by looking at a spending diary that was kept by a Fool for a series of articles we wrote on the subject.

When you know where you spend your money you'll be able to check it against your income. If you're overspending then you'll know it's time to tighten your belt, cut back on the non-essentials and get out of debt. If you have money left over, then you need to think about what you're going to do with it and there's a wealth of information right here that you can start with.

Either way, it might make sense to have an account that is purely for all essential bills and to put the required amount in it each month the moment you get paid – perhaps with a little bit extra in it to cope with unexpected bills such as a washing machine break-down. Keep a regular eye on it to make sure bills are being paid properly and watch out for bills that might go up such as the council tax so you increase your contributions to the account when necessary.

The trick is to keep a regular eye on your spending and to know exactly why and where you are spending it.

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