How You Can Create a Budget
When it comes to creating a budget, it is something that scares a lot of people. But there is no reason to be scared of creating a budget if you just take it slowly and do not rush it. A budget is truly a simple thing that people make to sound much worse. I think this is likely because many people do not like dealing with their finances and money.
Figure out Your Finances
1) Gather paperwork required – bank statement, credit card statements, utility bills. It is a good idea to look at several months to get the truest picture of your expenses. I like to enter this all in a spreadsheet as it makes it easier to calculate as you can set up formulas to add and average things for you.
2) Expense List – Write down how much you pay each month for your expenses. Rent, mortgage, utilities, groceries, clothing and everything else that you pay for. Total this up. It may be best to look at your expenses over multiple months and then average it out to get a good idea of what your monthly expenses truly are.
Note: Do not forget to include yearly expenses that you only pay once a year such as house insurance. Take the total and divide by 12 to get your monthly portion to include in the budget.
3) Savings – If you have monthly saving deposits, make sure you record these as well. These are still something that is going out of your bank account instead of going in, so it is important that you include these. But you may want to categorize them differently than something such as groceries.
4) Income – Write down all the income you have each month. This would include what comes into your house each month from your job or from any other sources that you may have. If it is variable each month, then it is a good idea to use the lowest amount you have made in any month.
From here, you know what your current spending is. Subtract your expenses from your income and see where you end up. If your income is less than expenses, you need to either increase you income or decrease your expenses.
Now You Create a Budget
1) List all your expenses – Start with those that are fixed (ie. Rent, house payment, taxes) and then those that are variable (groceries, gas).
2) For the variable expenses, look at what your average monthly expense is and determine if it is something you could decrease. If you are living on your own and you spend $500 a month on groceries, you may want to try and get it down to $400 instead. Another change would be not getting your hair dyed at the salon but doing it at home instead. Regardless, put these decreased costs into your budget.
3) Does the budget balance – Do your expenses equal less than your income? If not, you need to keep tweaking the budget. If there is absolutely no way you can cut expenses to get them less than your income, then you need to find more income.