Making a Budget
Budgeting gives you a spending plan for your money, which helps ensure that you’ll always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt — or help you work your way out of debt if that’s your current situation.
Planning and monitoring your budget can also help you identify wasteful expenditures, adapt quickly as your financial situation changes, and achieve your financial goals. When you actually see the breakdown of your expenses, you may be surprised by what you find.
Gather Your Financial Records
This includes bank statements, investment accounts, utility bills, and any other information regarding your regular expenses. The more details you can gather the better, since the goal is to create a clear picture of your monthly averages.
Document Your Income
Gather your pay stubs, or if you are self-employed or have any outside sources of income, be sure to include these as well. Record this total income as a monthly amount.
List Your Monthly Expenses
Start a list of all your regular expenses. This includes mortgage payments, loans, insurance, groceries, gas… Essentially, everything you spend money on each month.
Calculate Your Totals
You’ll have a list of what’s going out each month and what’s coming in. If your end results show that you have more income than expenses, you’re off to a good start. If you have more expenses than income, you’ll need to make some changes.
If your expenses exceed your income, don’t despair. Review your monthly payments and think carefully about what you can change. For many of us, dining out and entertainment are a great place to start. Do you really need to buy a lunch every day, or could you bring something from home? These kinds of small changes can go a long way to resolving money woes.
Review Your Budget Monthly
You’ve taken an important step by creating a budget, but follow-through is just as important. Review your budget each month and compare your actual expenses to what you created in the budget. This will show you where you did well and where you may need to improve.