A Quick Guide to Crafting a Budget Plan

Everyone hates budgeting, but it's a necessary evil. I've tried many strategies for simplifying the process and putting together spending plans I can actually stick to. Here's something I've learned: When building any sort of budget, remember these rules.

Get Tracking. These web tools will help ease your budgeting pain. PearBudget is a simple budgeting and expense-tracking tool that costs $4.95 per month. Or, try the free downloadable spreadsheet version. NeoBudget is an online service for "envelope" accounting. There's a free version, but for $4 per month, you get more power. You Need a Budget isn't free: The desktop version costs (a potentially budget-breaking) $60. But those who use it swear by it. If you need top-of-the-line help, this is your best bet.

Forget perfection. A budget is simply a target. Your spending likely won't be perfect the first month (or the second, or the third). If you can't get your money into perfect balance, get it as close as you can. Make adjustments as needed.
Don't sweat the small stuff. Yes, you should clip coupons and shop at sales. But it's the big stuff that really counts. Be smart when you buy a house or a car, and you'll have more room in your budget for fun.
Make plans based on reality, not on your idealized life. Don't base your budget on wishful thinking. Sure, you still may get that pay raise or bonus, but wait until it's actually in hand before accounting for it.
Keep it simple. If your system of budgeting is a chore, you'll never follow through. Track by only as much detail as you need. Even if you are able to keep your spending in check, overly complex budgets will fail, because they require too much effort to maintain.
That last rule may be the most important. In their book All Your Worth: The Ultimate Lifetime Money Plan, mother-daughter team Elizabeth Warren and Amelia Warren Tyagi propose a simple budget with only three categories: must-haves, savings and wants. Their Balanced Money Formula suggests dividing net (after-tax) income like this:
• 50 percent (or less) for needs. These are the things you must spend on in order to live in the modern world, such as housing, utilities, healthcare, transportation, insurance and basic groceries and clothing.
• 20 percent (or more) for savings. This includes retirement accounts, emergency savings and other investments. For the purposes of this budget, debt repayment also counts as savings.
• 30 percent for wants. Essentially, this is everything else: cell phones, entertainment, haircuts, pet supplies, travel and food or clothing that's beyond the basics.
Your goal should be to trim your needs and boost your savings until they're both at sustainable levels. Do this, and you have permission to spend the rest of your money on wants--and spending on fun stuff is even more fun when you know you can afford it.
When I discovered this basic formula, I felt liberated. The simplicity freed me from having to track dozens of categories. And the plan is easily customizable; as time went on, I broke out a few subcategories I wanted to track, like vacation spending and dining out.
And that's key to finding a spending plan that works for you. These ideas are merely a starting point. You need to tailor them to create a budget that suits your life.
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This article was originally published in the July 2012 print edition of Entrepreneur with the headline: A Fine Balance.

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Angels, Equity and a Shark of One's Own

Many small-business owners dream of finding an angel investor or two who would pump cash into their business and help them expand.
In my experience, though, most of these dreams are more like delusions. Why? Most business owners don't have a realistic sense of what they'd have to give up to an angel investor. And often, once you find out what you'd be giving up by taking on an investor, you're not interested.
Case in point was a recent Shark Tank episode. Five different entrepreneurs came out to pitch the Sharks -- and each one made an equity offer that was just never going to fly.
First up was Wild Squirrel Nut Butter, whose two perky young University of Oregon college-student owners hoped to get $50,000 for 10 percent of their business. They were followed by the band Cab20, seeking $200,000 for 20 percent of their business.
Next was the one furthest into dreamland, interchangeable-parts swimwear startup Mix Bikini, which wanted $50,000 for just 5 percent of their business (which they hastily increased -- but only up to 10 percent).
And finally, the son of Tae Bo legend Billy Blanks, dancer Billy Blanks Jr., sought $100,000 for 20 percent of his fitness-video program.
Have none of these people ever met an angel investor before? Sure, angel investors are rich. But that doesn't mean they hand out their money freely.
Related Video: A Sneak Peek at Shark Tank's Season Finale
They are taking a risk on your business with their dollars and expect a big chunk of ownership in your business in return. Usually, it's 50 percent or more. I was surprised when Shark Barbara Corcoran did a deal for $50,000 for only 40 percent of Wild Squirrel. That was an unusually low equity stake.
The thing about offering such low percentages of equity for a six-figure sum on a startup is it means you are overvaluing your company. If 20 percent of your company is worth $100,000, that means you think it's a half-million-dollar business. Angels often disagree, particularly if you've barely begun to book any sales.
Another thing: When an investor comes in, they want a piece of the whole pie. For instance, Cab20 was thinking its deal should exclude the band's copyrights, an idea the Sharks roundly rejected. Kevin O'Leary was interested for 50 percent of everything, and Cab20 passed. Sharks Mark Cuban and Daymond John offered Blanks $100,000 for half his business, a deal he initially balked at but ended up taking.
That's the hard decision entrepreneurs seeking investors usually have to make: whether to cut your business ownership in half in return for the capital you need.

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