How to Create a Working Budget
Calculate how much money you earn in a month after taxes., Calculate your expenses., Set your goal., Divide your budget into basic categories., List all your spending for each category., Add up all your spending by categories., Decide on a method to...
Step-by-Step Guide
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Step 1: Calculate how much money you earn in a month after taxes.
Begin by figuring out exactly what you bring home each month--your net income after taxes and other deductions.
This includes your paycheck, child support or alimony, government subsidies, interest earned on savings, and any income from self-employment.
Include tips, supplementary income, side-jobs, investments etc.
For this budget plan, use your net pay or take home pay.
This is your income. -
Step 2: Calculate your expenses.
Save receipts for a couple of weeks or a month.
Knowing your monthly expenditure on groceries or gas (for example) makes the next step much easier.
If you want to start writing your budget today, and don't have receipts, it is possible, just slightly more difficult.
Fixed Expenses are expenses that remain relatively stable from one month to the next.
These will include items such as your rent, mortgage payment, car payment, loan payments, utilities, and insurance. A fixed expense that many people overlook is savings.
You must pay yourself--in the form of your savings account--before you pay anyone else.
This way you can develop a financial "padding" to protect yourself during times of financial hardship. Variable Expenses are items that fluctuate from one month to the next such as the costs associated with dining out, entertainment, clothing, groceries, personal care products, and vacations.
This will be the first place to make cut-backs if you are spending beyond your means. , Defining a goal makes it easier to stick to your budget, and gives you a way of measuring your success or failure in meeting it.
Why are you going on a budget? Maybe you want to start saving for college, or maybe you want to get out of debt. , For example:
Housing, Food, Auto, Entertainment, Savings, Clothing, Medical, and Miscellaneous.
You could also organize your expenses into needs
- such as your loan and electricity
- and wants
- such as clothing and entertainment. , Let's take Auto as an example: $300/month car payment, $100/month insurance, $250/month on gas, $50/month on maintenance, 10$/month on fees such as registration.
So, your total Auto budget for the month would be $710/month.
If you don't know the exact amounts you spend, make good estimates.
The more accurate you are, the more likely you are to keep to your budget plan. , This should show your total monthly spending.
Compare it to how much you make each month after taxes. , You can use a good old-fashioned ledger book, available from a general shopping center for about $5.
Some people prefer to use computer programs like Quicken or Microsoft Money. , Leave the first 5-odd pages blank, we'll come back to them later.
Divide the rest of the ledger into as many sections as you have main categories.
Put each main category on the first page of each section.
This will give you room for lots of entries in each category.
Multiple transaction categories, like food, are going to need lots of pages. , I found monthly to be the most useful for me, since most bills are monthly.
However, I decided to make the deposits to my budget categories twice a month.
In other words, if my Auto budget for the month is $710, I showed "deposits" of $355 in the Auto section on the 1st and 15th of each month. , So, for Auto, you would start off with $710 for the month, then show several expenditures for gas, one expenditure for car payment, maybe one expenditure for insurance(depending on whether you pay insurance monthly or not). , For instance, I get paid every other Friday, so there are corresponding entries in the income section showing income deposits every other Friday.
My budget is $2,800/month, and gets subtracted on the 1st and 15th.
So on each 1st and 15th, the income sections shows a budget subtraction of $1,400. , In order to devise a balanced budget, your income must be greater than your expenses.
To find out if your budget is balanced, you need to subtract your fixed and variable expenses from your income.
The Balanced Budget.
If your income is greater than your expenses, you have likely been handling your finances responsibly.
Your next step is to make sure that you put your leftover funds to work for you.
It may be tempting to spend your extra money, but as long as you have debt or unrealized savings goals, there is no such thing as "money to spare." Instead, pay down your debt and add to your savings. The Unbalanced Budget.
If you are spending more than you earn, you have some serious work to do.
Begin by examining your variable expenses.
You will need to pare back on this spending first by cutting back on meals out, entertainment, clothing, and personal care products, to name a few. If your budget is still out of whack, try cutting back on fixed expenses too.
Perhaps you can rent a room or take on a roommate to share your bills.
Or, maybe, you need to opt for a cheaper or more fuel-efficient car. The other option is to increase your income by taking on part-time labor, doing overtime, switching jobs, or starting a home-based business.
Evaluate continually.
Your financial situation will change; therefore, it is necessary to make alterations to your budget from time to time.
If you pay off a debt, get a raise, or make some other life change, rework your budget using your new information.
And remember, savings and debt repayment are always your number one priority. -
Step 3: Set your goal.
-
Step 4: Divide your budget into basic categories.
-
Step 5: List all your spending for each category.
-
Step 6: Add up all your spending by categories.
-
Step 7: Decide on a method to keep track of your budget.
-
Step 8: Set up your ledger.
-
Step 9: Decide how long your budget plan must last.
-
Step 10: Show a deposit in each category at the start of each period
-
Step 11: then show all the expenditures from that category throughout the period.
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Step 12: Use that first section of the ledger book to record income and then show the budget being subtracted from it each period.
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Step 13: Make adjustments.
Detailed Guide
Begin by figuring out exactly what you bring home each month--your net income after taxes and other deductions.
This includes your paycheck, child support or alimony, government subsidies, interest earned on savings, and any income from self-employment.
Include tips, supplementary income, side-jobs, investments etc.
For this budget plan, use your net pay or take home pay.
This is your income.
Save receipts for a couple of weeks or a month.
Knowing your monthly expenditure on groceries or gas (for example) makes the next step much easier.
If you want to start writing your budget today, and don't have receipts, it is possible, just slightly more difficult.
Fixed Expenses are expenses that remain relatively stable from one month to the next.
These will include items such as your rent, mortgage payment, car payment, loan payments, utilities, and insurance. A fixed expense that many people overlook is savings.
You must pay yourself--in the form of your savings account--before you pay anyone else.
This way you can develop a financial "padding" to protect yourself during times of financial hardship. Variable Expenses are items that fluctuate from one month to the next such as the costs associated with dining out, entertainment, clothing, groceries, personal care products, and vacations.
This will be the first place to make cut-backs if you are spending beyond your means. , Defining a goal makes it easier to stick to your budget, and gives you a way of measuring your success or failure in meeting it.
Why are you going on a budget? Maybe you want to start saving for college, or maybe you want to get out of debt. , For example:
Housing, Food, Auto, Entertainment, Savings, Clothing, Medical, and Miscellaneous.
You could also organize your expenses into needs
- such as your loan and electricity
- and wants
- such as clothing and entertainment. , Let's take Auto as an example: $300/month car payment, $100/month insurance, $250/month on gas, $50/month on maintenance, 10$/month on fees such as registration.
So, your total Auto budget for the month would be $710/month.
If you don't know the exact amounts you spend, make good estimates.
The more accurate you are, the more likely you are to keep to your budget plan. , This should show your total monthly spending.
Compare it to how much you make each month after taxes. , You can use a good old-fashioned ledger book, available from a general shopping center for about $5.
Some people prefer to use computer programs like Quicken or Microsoft Money. , Leave the first 5-odd pages blank, we'll come back to them later.
Divide the rest of the ledger into as many sections as you have main categories.
Put each main category on the first page of each section.
This will give you room for lots of entries in each category.
Multiple transaction categories, like food, are going to need lots of pages. , I found monthly to be the most useful for me, since most bills are monthly.
However, I decided to make the deposits to my budget categories twice a month.
In other words, if my Auto budget for the month is $710, I showed "deposits" of $355 in the Auto section on the 1st and 15th of each month. , So, for Auto, you would start off with $710 for the month, then show several expenditures for gas, one expenditure for car payment, maybe one expenditure for insurance(depending on whether you pay insurance monthly or not). , For instance, I get paid every other Friday, so there are corresponding entries in the income section showing income deposits every other Friday.
My budget is $2,800/month, and gets subtracted on the 1st and 15th.
So on each 1st and 15th, the income sections shows a budget subtraction of $1,400. , In order to devise a balanced budget, your income must be greater than your expenses.
To find out if your budget is balanced, you need to subtract your fixed and variable expenses from your income.
The Balanced Budget.
If your income is greater than your expenses, you have likely been handling your finances responsibly.
Your next step is to make sure that you put your leftover funds to work for you.
It may be tempting to spend your extra money, but as long as you have debt or unrealized savings goals, there is no such thing as "money to spare." Instead, pay down your debt and add to your savings. The Unbalanced Budget.
If you are spending more than you earn, you have some serious work to do.
Begin by examining your variable expenses.
You will need to pare back on this spending first by cutting back on meals out, entertainment, clothing, and personal care products, to name a few. If your budget is still out of whack, try cutting back on fixed expenses too.
Perhaps you can rent a room or take on a roommate to share your bills.
Or, maybe, you need to opt for a cheaper or more fuel-efficient car. The other option is to increase your income by taking on part-time labor, doing overtime, switching jobs, or starting a home-based business.
Evaluate continually.
Your financial situation will change; therefore, it is necessary to make alterations to your budget from time to time.
If you pay off a debt, get a raise, or make some other life change, rework your budget using your new information.
And remember, savings and debt repayment are always your number one priority.
About the Author
Karen Carter
Writer and educator with a focus on practical lifestyle knowledge.
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