Posted by Lending Club :: October 29, 2010 @ 4:05 am

While most of us know intuitively how to budget,  many people start end up staring, bug-eyed, at a blank spreadsheet, defeated by the thought that creating a shoestring budget is an impossible task, and even more impossible sticking to it.  Budgeting feels overwhelming because there are just so many variables: cash flow, revenue, savings, cost of living, discretionary expenses, and the dreaded unexpected curves life throws at you.  If knowing how to deal with these would help you get started on a budget, keep reading for a couple of different theories that make it easy to create a shoestring budget.

Theory 1: Allocate Every Dollar
In this theory of budgeting, consumers are encouraged to figure out where every single dollar they make is going to end up. This takes them into the nitty-gritty details of their spending, asking them to figure out just how many lattes they can really afford in a month. The result is usually a detailed spreadsheet, and people who keep these kinds of budgets are often meticulous and love detail-oriented tasks.

If you are having trouble making ends meet, this may be the type of budget for you. If you can follow it, you’ll have a place for every penny and every penny in its place.

Theory 2: Only Allocate Necessary Dollars
Another theory of budgeting asks people to only figure out where their necessary expenses are coming from. Once all of those are met, any additional income can be spent however their little hearts desire. Most proponents of this style of budgeting have a loose view of what is necessary, lumping things like “saving money” on top of “making a house payment” and “buying groceries.”

Some people find this kind of budget freeing, because they don’t have to limit their spending after the essential expenses get paid. They can spend as much as they want on dining out if they have money left over, and they don’t have to worry about it. Opponents say that it encourages overspending, because people could be saving that leftover income.

What Works for You?
Consider your personality and your financial situation when deciding which type of budget is best for you. Or just choose one, see if it works, and go from there. Any budget is better than none at all, specially when you're living on a shoestring. So find out what works for you.

Have any tips to share? Leave us a comment below.

Image courtesy of Jeff Keen.