Budgeting Strategies

Steps to Begin Creating a Budget: Read about 6 simple steps to being a budget for expense tracking.

A written, monthly budget is a financial planning tool that allows you to plan how much you will spend or save each month. It also allows you to track your spending habits. Ultimately, the result of your new budget will show you where your money is coming from, how much is there, and where it all goes each month.

• Important Tip: A budget only works if you are honest about both your income and expenses. To make an effective budget, you must be willing to work with detailed and accurate information about your earning and spending habits.

1: Before you begin, gather up all your financial statements, including: Bank statements, recent utility bills, credit card bills, mortgage/rent and auto loan statements, and paystubs

2: Calculate Your Income. If your income is in the form of a regular paycheck using the net income (or take-home pay) amount is fine. If you are self-employed or have outside sources of income, such as child support or Social Security, include these as well. Record this total income as a monthly amount. If you have a variable income (for example, from a seasonal or freelance job), consider using the income from your lowest-earning month in the past year as your baseline income when you set up your budget.

3: Create a List of Monthly Expenses. Write down a list of all the expenses you expect to have during a month. This list could include: mortgage payments or rent, car payments, insurance, groceries, utilities, eating out, entertainment, childcare, and personal care.

4: Determine Fixed and Variable Expenses. Fixed expenses are those mandatory expenses that you pay the same amount for each month. Include mortgage/rent, car payment, credit card payments, and childcare. Variable expenses are the type that will change from month to month, such as: groceries, gasoline or travel expenses, entertainment, gifts, and eating out. Start assigning a spending value to each category, beginning with your fixed expenses. Then, estimate how much you'll need to spend per month on variable expenses. If you're not sure how much you spend in each category, review your last two or three months of credit card or bank transactions to make a rough estimate.

5: Total Your Monthly Income and Expenses. If your income is higher than your expenses, you are off to a good start. If your expenses are more than your income, that means you are overspending and need to make some changes.

6: If you're in a situation where expenses are higher than income, find areas in your variable expenses you can cut. Look for places you can reduce your spending—like eating out less—or eliminate a category—like canceling your gym membership. Aim to have your income and expense columns to be equal. This equal balance means all of your income is accounted for and budgeted toward a specific expense or savings goal.

(Source: Step-By-Step Guide to Make a Personal Budget (thebalance.com): https://www.thebalance.com/how-to-make-a-budget-1289587#:~:text=How%20to%20Make%20a%20Budget%20in%20Six%20Simple,Expenses.%20...%206%20Make%20Adjustments%20to%20Expenses.%20)

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