Creating A Budget
Managing Finances: Create A Budget
Introduction
A budget can be an extremely useful tool for anyone! It is a plan used to track the spending and income you will have through a certain period. Budgets can be set to cover a week, month, or even a year. Creating a budget is very easy and can be done in a very short amount of time.
Step 1 Part A: Know Your Expense History
Look back at your spending for the last week/month/year (however long the budget will encapsulate) and document all of your fixed expenses, variable expenses (expenses that flex and change), and monthly payments/insurance. The variable expenses will include gas (if it changes), entertainment, restaurants, and any other expenses that are not constant in total and repetitions. Monthly payments will obviously include all monthly outflows including your car payment, house payment, and any other payments (usually loan related). Insurance is self-explanatory. The fixed expenses are going to be constant expenditures throughout the month including: groceries, gas (if consistent), etc. Add all of these up as accurately and realistically as possible to get one total expenditure for the time period.
Step 1 Part B: Know Your Income History
Now make note of all significant income sources that you have (jobs, rental properties, etc.). Add these up to form one total Income number for the time period. At this point in time, if your income number is greater than your expense number you are in good shape!
Step 2: Budget Time! | Part 1: Define Outflow Priorities
Now make a list of all your expenditures for that time period and rank them in order of importance/urgency to be paid. Insurance, loan payments, gas and groceries will all be at the top of the chart with entertainment and eating out below that. *From here going forward the previously undefined time period for this budget will now be defined as 1 Year
Step 2: Budget Time! | Part 2: Savings!
Next determine what you can set aside to save every month (ideally 10% of your income). Having a savings account will come in handy in the event of an emergency or if you suddenly need a little extra cash. It also doesn't hurt to start saving for retirement (regardless of your current age) if you haven't already. These savings are very important and should not be withdrawn from except for cases of extreme circumstances (or retirement, etc.).
Step 3: Set the Budget
Now that you have your spending and saving in mind, it is time make those number bend and yield to your total monthly income. Create four categories for your expenses: Saving, Bi-Weekly (Necessary), Monthly (Necessary), and Luxury. Under these headings fill in the expenses that apply (if you know them). Keep your income number in mind. It is generally good practice to withhold filling the luxury column out until after completing the other three. The Luxury column's amount will be determined if there is any extra money left over after filling out the expenses. At this point, you can choose to put the rest into the Luxury Column or raise your saving amount.
Step 4: Stick to It!!
Creating a budget to throw away is just a waste of time. Make sure you stick to it. Keep yourself below your total income if possible. If you cannot keep yourself below it, at least try to stay even. After diagramming out your budget, determine whether the end of the month number will be red (negative - you spent more than you made) or black (you made more than you spent). If you find yourself ending up in the red frequently, re-examine your budget and determine if costs/expenses can be cut anywhere. After budgeting your first month, take another look and see if you can improve it for the future. Your budget should be constantly updated and improved. By doing this and staying in the black, you are giving yourself a brighter, more profitable future.
Introduction
A budget can be an extremely useful tool for anyone! It is a plan used to track the spending and income you will have through a certain period. Budgets can be set to cover a week, month, or even a year. Creating a budget is very easy and can be done in a very short amount of time.
Step 1 Part A: Know Your Expense History
Look back at your spending for the last week/month/year (however long the budget will encapsulate) and document all of your fixed expenses, variable expenses (expenses that flex and change), and monthly payments/insurance. The variable expenses will include gas (if it changes), entertainment, restaurants, and any other expenses that are not constant in total and repetitions. Monthly payments will obviously include all monthly outflows including your car payment, house payment, and any other payments (usually loan related). Insurance is self-explanatory. The fixed expenses are going to be constant expenditures throughout the month including: groceries, gas (if consistent), etc. Add all of these up as accurately and realistically as possible to get one total expenditure for the time period.
Step 1 Part B: Know Your Income History
Now make note of all significant income sources that you have (jobs, rental properties, etc.). Add these up to form one total Income number for the time period. At this point in time, if your income number is greater than your expense number you are in good shape!
Step 2: Budget Time! | Part 1: Define Outflow Priorities
Now make a list of all your expenditures for that time period and rank them in order of importance/urgency to be paid. Insurance, loan payments, gas and groceries will all be at the top of the chart with entertainment and eating out below that. *From here going forward the previously undefined time period for this budget will now be defined as 1 Year
Step 2: Budget Time! | Part 2: Savings!
Next determine what you can set aside to save every month (ideally 10% of your income). Having a savings account will come in handy in the event of an emergency or if you suddenly need a little extra cash. It also doesn't hurt to start saving for retirement (regardless of your current age) if you haven't already. These savings are very important and should not be withdrawn from except for cases of extreme circumstances (or retirement, etc.).
Step 3: Set the Budget
Now that you have your spending and saving in mind, it is time make those number bend and yield to your total monthly income. Create four categories for your expenses: Saving, Bi-Weekly (Necessary), Monthly (Necessary), and Luxury. Under these headings fill in the expenses that apply (if you know them). Keep your income number in mind. It is generally good practice to withhold filling the luxury column out until after completing the other three. The Luxury column's amount will be determined if there is any extra money left over after filling out the expenses. At this point, you can choose to put the rest into the Luxury Column or raise your saving amount.
Step 4: Stick to It!!
Creating a budget to throw away is just a waste of time. Make sure you stick to it. Keep yourself below your total income if possible. If you cannot keep yourself below it, at least try to stay even. After diagramming out your budget, determine whether the end of the month number will be red (negative - you spent more than you made) or black (you made more than you spent). If you find yourself ending up in the red frequently, re-examine your budget and determine if costs/expenses can be cut anywhere. After budgeting your first month, take another look and see if you can improve it for the future. Your budget should be constantly updated and improved. By doing this and staying in the black, you are giving yourself a brighter, more profitable future.