A budget is an important piece of a strong financial foundation. Having a budget helps you manage your money, control your spending, save more money, pay down your debt, or stay out of debt. Without an accurate picture of what comes and goes out of your bank account, you can easily rely on credit cards and loans to eat and pay your bills. If you already have one, take a good time updating it.
Download and print a budget worksheet. Using a worksheet will help you get started. You can use it to complete all of the following steps. You can also create your own budget worksheet using spreadsheet software or even paper a pencil.
List your income. Add any reliable sources of income – wages from a job, maintenance, child care, etc. Note I say reliable. If you sometimes get money from outside jobs or hobbies, but it is not on a regular basis, do not put this as income on your budget. Your budget should be a document you can rely on.
If you are self-employed or have a fluctuating income, use an average monthly income or an estimate of the income you expect to earn that month.
Add your costs. Some of your monthly expenses are fixed – mortgage / rent, property taxes, childcare, maintenance – while others may vary – electricity, water, food. List all fixed expenses and how much they will cost.
For your variable costs, write down the maximum amount you plan to spend in that category or the amount you expect your bill to be. For example, you might plan to spend $200 on groceries and $150 on gas.
Use your bank statements to help you figure out what you typically spend each month and to make sure you're not leaving spending in any categories .
Some of your expenses do not occur each month. But, accounting for the periodic expenses in your monthly budget can make it easier to afford them when theyre due. Divide annual expenses by 12 and semi-annual expenses by 6 to spend the monthly amount in these categories.
Calculate your net income. Your net income is what you left with after all the bills are paid off. You want this to be a positive number, so you can put it towards your debts. Calculate your net income by subtracting your expenses from your monthly income. Note the number, even if its negative.
Adjust your expenses. If your net income is negative, it means that you are scheduled to spend more than your income. Youll have to correct this or youll go into trouble during the month. Variable expenses are usually the first places you can adjust spending, z.B. Groceries, food, hobby, gas. Some of your fixed costs can also be adjusted, e.g.B. Reduce your cable or phone bill, cancel gym membership, don't take a vacation this year. Evaluate your expenses with a will vs. Needs analysis. Reduce or eliminate spending in these areas to make more room for the things you need to spend money on.
Tracking your spending. Throughout the month, track your actual expenses against what you budgeted for. If you are going over budget, this will help you figure out where you spent more money. In the future, you can no longer focus on promising in this area. Or, you may need to adjust your budget to compensate for the additional spending. If you increased your budget in one area, decrease it in another area so as not to go from your budget.