The Basics of Creating a Budget
Does it always seem like you have too much month left at the end of your money?
Are you confident in being able to retire comfortably?
Do you want to be able to save for a down payment on a car or house?
The Need for a Budget
The financial area of your life can have a great impact on your level of happiness. It is important to be able to feel like you have enough, and not to have to worry about your means for tomorrow. Being able to do this requires patience and planning.
I know, mentioning financial planning can invoke thoughts of sitting down with a mound of receipts and documents with a professional money expert in order to make major preparations for your and your family’s future.
The start to any solid financial plan, though, starts with the simple act of creating a budget. If this gives you tired head, already, don’t worry, you only usually have to create the template to your budget once, and then adjust it only once a month.
Here are the basic steps to putting together a budget:
Step 1
Keep detailed records of your income and expenses so that you can track where your money is going. If you have a computer or mobile phone, you can use a program like EveryDollar to organize your accounts and transactions.
There are several other free budgeting apps to choose from, as well, and apps that you can try, like YNAB (You Need a Budget) and Quicken Simplify, are inexpensive and have additional features.
Step 2
Set up a budget based on your expected income and expenses. Your fixed income and expenses stay the same each month, while your variable income and expenses can change from month to month. Try to be as accurate as possible, based on your records. Your goal should be to estimate it as best as you can, but keep in mind that budgets can vary some from month to month, due to variable income and expenses.
Here are example items on a budget that you can use as a reference:
Income
Fixed Income
Paycheck
Social security check
Variable Income
Business profits
Stock dividends
Interest
Expenses
Fixed expenses
Rent
Utilities
Phone
Insurance
Medications & Vitamins
Variable expenses
Groceries
Internet and Cable
Subscriptions
Restaurants
Gas & auto maintenance
Supplies
Clothes
Entertainment
Medical visits
Credit card payments
Miscellaneous - ex. books, magazines, gifts
Your Monthly Savings Amount
Step 3
Calculate the amount that is leftover after subtracting all expenses from all income.
This amount leftover is the amount you should count as your savings for the month.
See how high you can make this amount by adjusting your budget – aim for at least 10%-15% of your income, depending on your goals.
If you have trouble meeting your budget while keeping at least 10%-15% of your income, try “trimming the fat” of your planned expenses by considering lowering those of variable expense categories such as
• entertainment
• restaurants
• extra cable channels
• subscriptions
• magazines
Giving up some indulgences may prove to be worthwhile in the long run to allow for expenditures later, such as buying a home, purchasing a car, or funding your retirement.
Pay Yourself First
Now that you know what amount you can save each month, based on your budget, have your bank automatically transfer this amount from your checking account to your savings account on the date that you receive your paycheck (if it is direct deposit). If you receive a check in person, transfer the amount immediately after depositing it. This is known as paying yourself first, to make sure that you don’t stray from your budget with other variable expenses that you have not planned on.
There: now you can accumulate savings monthly with a solid budget, and are on your way to reaching your financial goals. For information on how to use your savings to save for an emergency fund, pay off debt, or invest in your and your children’s future, go to the financial and investing sections of this website.