A budget is vital for keeping your financial house in order. When dealing with a budget it is important to realize that in order to be successful you have to provide as much detailed information as possible. Ultimately, the end result will rely on how accurate your budget is and how well you stick to it.
Budgeting is not hard. The most challenging part of budgeting is figuring out how you can make all your income pay all your obligations. The actual act of composing the budget is pretty easy:
- Gather every financial statement you can. This includes bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense. The key for this process is to create a monthly average so the more information you can dig up the better.
- Record all of your sources of income. If you are self-employed or have any outside sources of income be sure to record these as well. If your income is in the form of a regular paycheck where taxes are automatically deducted then using the net income, or take home pay, amount is fine. Record this total income as a monthly amount.
- Create a list of monthly expenses. Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes a mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college savings and essentially everything you spend money on.
- Break expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on. These expenses for the most part are essential yet not likely to change in the budget.
- Variable expenses are the type that will change from month to month and include items such as groceries, gasoline, entertainment, eating out and gifts to name a few. This category will be important when making adjustments.
- Total your monthly income and monthly expenses. If your end result shows more income than expenses you are off to a good start. This means you can prioritize this excess to areas of your budget such as retirement savings or paying more on credit cards to eliminate that debt faster. If you are showing a higher expense column than income it means some changes will have to be made.
- Make adjustments to expenses. If you have accurately identified and listed all of your expenses the ultimate goal would be to have your income and expense columns to be equal. This means all of your income is accounted for and budgeted for a specific expense.
- If you are in a situation where expenses are higher than income you should look at your variable expenses to find areas to cut. Since these expenses are typically essential it should be easy to shave a few dollars in a few areas to bring you closer to your income.
- Review your budget weekly. It is important to review your budget on a regular basis to make sure you are staying on track. After the first month take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will show you where you did well and where you may need to improve.
Writing down your budget can be a real eye-opener. Many people compose a budget only to realize that they are spending more money every month on coffee than on their car payments. For some people, just seeing it in print is enough to prompt them to change their spending habits.
The difficult part is to actually follow your budget. Don’t go through all the trouble of composing a budget to only turn around and go right back to spending as you always have. A written budget is an invaluable tool, but only if you actually use it.
If you notice that your credit cards, personal loans, and other unsecured debts are absorbing too much of your income on a monthly basis, you can speak to one of our counselors and receive a free consultation. We offer programs which can cut down your monthly payments by more than 50%. You can fill out our Short Application and one of our counselors will contact you within minutes, or you can call now (877) 479-4545.