Creating a budget is an important step to managing your money wisely. The first step to creating a budget is to gather all of your bills, bank statements, pay stubs, etc.
1. Create a list of your monthly income. A recent paystub can be the easiest source, but make sure you gather all sources including those without standard paystubs.
2. Create a list of monthly expenses. These should include:
- Mortgage payment
- Car payment
- Auto insurance
- Homeowners insurance
- Association Fees
- Health insurance
- Food and personal items
- Utilities
- Water and Sewer
- Electric
- Gas
- Cable/Internet
- Entertainment
- Retirement or investments
- Credit Card
- Cell Phone
- Life Insurance
- Student Loans
- Newspaper
- Dental Insurance
- Gasoline
- Vehicle registration
3. Assess Your Expenses – determine which expenses are constant or fixed and which will vary by month or season.
- Depending on where you live, your heating and electric bills may vary widely by season. Be sure to adjust your budget accordingly so you don’t have surprises due to seasonality.
- Gasoline – do you travel long distances for vacations or holidays? Make sure you plan for these travels and factor them into your budget.
- Eating Out – do you eat out only for special occasions like birthdays and anniversaries? If so put it in the budget. If you consistently eat our once or twice a week, you might be able to put this as a fixed budget item.
- Gifts – don’t let birthdays and Christmas sneak up on you. Mark these months on your budget. If you have a budget set you will be more likely to stick to it. This will prevent you from drowning in credit card debt after the holidays.
4. Total your monthly income and monthly expenses. Hopefully your budget is showing more income than expenses so far. This means you have some flexibility in your budget to transfer some dollars to savings, a retirement account or pay off some of your debt faster. If you find your expenses are higher than your income, you’ll want to take a look at your variable expenses first.
5. Assess Your Expenses – now that you see how your expenses stack up, are you comfortable with your budget? If not, look for variable expenses you can shave. Try cutting back on eating out or conserving your fuel. A few simple changes in your lifestyle can save big money.
6. Review Your Budget and Pay Bills – Track your budget throughout the month as you pay bills. It can be helpful to put due dates on your budget and check off each bill as you pay them. This will help reduce the risk of late payments and incurring additional expenses. Compare your actual expenses to your budgeted expenses? How did you do? Luckily your budget is always a work in progress. Some months will look better than others, but stick with it, you will be better off if you track monthly spending.
Now that you have a budget, you might question some of your expenses and wonder if you are overpaying or if that expense is necessary. The next step is took look for money saving opportunities.