One of the questions I get all the time is, "how do I start a budget" or "the best way to start a budget" or "how to start a budget". Honestly, I am not sure what is so complicated about how to start a budget. In my opinion, the much bigger issue is that we don't educate anyone on using a budget.
I mean most parents would be outraged if their child was not taught a certain subject in school. What if your child did not receive any education at all in math or science? Would that bother you?
Most parents would be outraged by this idea. I know I would. But year after year in this country we allow our students to leave high school without a basic financial class. We ship them away to college without any idea on how to do a budget, balance a checkbook, or even do basic accounting. I get it. There's only so much time to teach a student during their 13 years of public education. (Yes, that was sarcasm.)
So now that I am done my rant against public education (for this article anyway), the answer to the question is quite simple. The answer is so simple in fact it was turned into a slogan for Nike. Just do it!
A budget is really not complicated. In the grand scheme of things all you have to do is take your income, and subtract your expenses. No matter how fancy the program or spreadsheet, the end result is the exact same. In order to win the game of money, you have to bring in more income than you spend every month.
And this is where the complications begin. In America, most people have no idea how much money comes in and goes out every month. If you ask someone how much they make for example, they will quote you their gross income before taxes. They usually say something like, “Oh, I made $45,000 last year.”
Reality is you didn't make anywhere near that much. After taxes and other payroll deductions for insurance and retirement plans, you likely brought home about 70% of that, or $31,500. For the sake of argument we will say that in this example, the person brought home $35,000.
Are you spending at the $45,000 per year level, or the $35,000 per year level? For the average person, they continue to spend as if they really were making $45,000 per year. And in your mind, you really are making $45,000 per year. Simple math however, tells us that you aren't bringing in anywhere near that income level. And that's why not having a budget is catastrophic to the average person's finances.
So the next time that someone asks "how to start a budget", or some other similar version of this phrase, maybe we should be completely sarcastic. Maybe we should say, “just do it”. After all, it seemed to sell an awful lot of shoes.