Creating A Budget

Creating a budget is not easy. It’s probably why so few people actually sit down and create one. Those who do have generally run into some financial problems (i.e. have hit bottom) are, more or less forced to do so. If you follow these 6 steps, and take a few minutes of your time each month, you can have a budget that not only keeps you out of financial trouble, but may also help you to begin to pay off your debts faster and put some money into savings.

Steps

1) Financial Statements

Try and gather all the financial statements that you can. This is to help you figure out how much you are spending and how much you are making. It is also to help you to come up with a monthly average, which will, in the end, help you to create a budget for the future. Examples of financial statements can include: investment account information, bank statements, and recent bills.

2) Income

It is important to keep track of all the income you have coming in. If you only have one job then simply use the take-home amount (after taxes) that you find on your pay slip. Make sure to record this information as a monthly amount. You may need to use a calculator for this one, depending on how often you get paid. Again, if you have more than one job, or any sources of income, make sure to include them.

3) Expenses

Come up with a list of expenses you have each month. Expenses could include car payments, insurance, debt owing, savings, cable, internet, rent, groceries, medical, dental, school, bills, and entertainment (i.e. beer and ice cream).

4) Variable And Fixed

Put your expenses under 2 categories: variable and fixed. A variable expense will be one that has the potential of changing from month to month. This could be entertainment, a gift for a birthday, gas for your car (you may go on a trip or prices might go up), and eating out. A fixed expense is generally one that does not change very often. This could be your rent, your car payments, internet, cable, groceries, bills (such as credit card and phone), as well as charitable donations, just to name a few. Your variable expenses are going to be the place where you first initially start making adjustments.

5) Income vs Expenses

This is where you find out how badly you’ve needed to create a budget for yourself in the first place. Once you’ve added up your total income for the month and your total expenses, compare the two. If your income comes to more than your expenses then you are off to a fine start. However, if your expenses outmatch your income, it’s time to buckle down and get ready for the long road ahead of you.

6) Adjustments

After you have compared your expenses to your income and you have found that your expenses are higher, it is time to have a look at your variable expenses. As mentioned earlier, these expenses are not “necessary” and so should be the first place you consider when making any cuts, or slight trimmings. In the end, you want your expenses to match your income. Even better, you’d like them to be less than your income. Then, you can start to consider saving some money for a rainy day.

Conclusion

After you have completed these 6 easy steps you should take a little bit of time each month to review your budget. It will literally only take 5 or 10 minutes once you’ve got the basic outline down. In this way you will be keeping track of all your spending and income and can make quick adjustments when need be. It is also a good way to see how accurate you were in coming up with the budget.