Beyond all the complex worksheets and software programs, budgeting involves two basic components. The first involves the money coming into your personal finances, and the second revolves around the money going out of your personal finances. Money coming into your finances sits over on the plus side of the balance sheet, while money going out mingles over on the minus side. If you have more money going out than coming in, you create a deficit that causes a situation where it eats away at your assets and eventually sends you into debt. As you incur more debt, you have to pay more to stay even financially. It’s a wicked downward spiral that ends with you going broke.
With this in mind, the first part of creating a personal finance budget is to look at your money coming in (income) and money going out (expenditures). This process usually involves listing both components on sheets of paper. Several websites, such as About.com and PersonalFinanceBudgeting,com offer free budget worksheets for you to use in putting your budget together.
Because they represent the minus side of the balance sheet, expenses are the component that gets the most scrutiny. Generally expenses are either fixed or variable. Fixed expenses such as property taxes and mortgage or rent payments are a hard area to save money. This leaves your variable expenses as being the place where you can begin budgeting your money toward the plus side of your personal finances.