Understanding how to create a monthly budget may not be easy but it is vital in keeping your finances in check. You must be as detailed as possible creating your budget or it will not be helpful in accounting for all of your monthly expenses. When done properly the end result will show where your money comes from, how much money there is and where it is all going…
Steps to Creating Your Budget:
1. Gather all of your statements. Be sure to include bank statements, investment accounts, recent utility bills and any other source of income or expense. The more information you can dig up the better.
2. Record all sources of income. For those who are self-employed or have other sources of income be sure to record these as well. Be sure to use your net (take home) income for creating your budget.
3. Create a list of your expenses. List all of your expected expenses for a given month. This includes mortgage/rent payments, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement and college savings. Basically include everything you spend money on.
(For more detailed budget add this step)
Break expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on. These expenses for the most part are essential yet not likely to change in the budget. Variable expenses are the type that will change from month to month and include items such as groceries, gasoline, entertainment, eating out and gifts to name a few. This category will be important when making adjustments.
4. Total everything up. If your end result shows more income than expenses you are off to a good start. If you are showing a higher expense column than income it means some changes will have to be made.
5. Make adjustments where needed. If you have accurately identified and listed all of your expenses the goal would be to have your income and expense columns match up! For those who find themselves in the situation where expenses are higher than income, be sure to look at your variable expenses to identify areas where you may be able to reduce a specific expense.
6. Constant review of your monthly budget. Now that you have a budget the most important part is to use it. Most of us think we know where we are spending our money but trust me that just is not the case. For example, who actually accounts for that extra soda in a day, extra trip to the mall or just something that comes up? The short answer is none of us…
Very few of us are experts in accounting for our daily, weekly or monthly spending. Therefore, my goal in putting these somewhat simple steps together was that we, at a minimum, put one more second of thought when it comes to spending the last couple of bucks in the bottom of our wallets. The counselors at Debt Free are experts in analyzing your monthly budget and offer this during a free consultation.
I hope you found this information useful in planning your monthly budget. Please check back often as new information is added daily.
