While some people establish a personal or household budget by beginning with expenses, others do better to start with income and work from there. If you want to make a variety of short-term and long-term savings goals, develop an aggressive investment strategy or create a budget that accounts for wide vacillations in monthly pay, a budget plan based on income may suit your needs. Be sure to choose a budgeting style that suits your needs and preferences, including a dedicated amount toward unexpected and miscellaneous daily purchases.
Assess your monthly net income. Account for additional or irregular sources of income such as interest payments, investment dividends, inheritances, gifts or bonuses. If your income varies widely, you can also list a range of figures or divide your yearly income by 12 to arrive at a monthly average.
Fill out your monthly income on a piece of paper, an Excel spreadsheet, a budget worksheet or an online budget worksheet.
Select a style for budgeting your money. If you need to pay down high-interest debt or have a narrow margin between income and expenses, you should use more exact figures for your expense categories. If you have a substantial margin and a variety of savings and investment goals, a percentage budgeting system may work better for you.
List regular monthly expenditures for necessities on your budget plan. Include necessities such as housing costs, groceries, toiletries, utilities, insurance premiums, medical expenses, loan payments, car expenses and public transportation. Also list fluctuating and more luxury-oriented expenses, such as dining out, subscriptions, gifts, vacations and charitable donations.
Amortize yearly expenses like taxes, appliances, home maintenance and car repairs.
Establish a priority system for your disposable income. After you dedicate money to basic living expenses, you should first pay down any high-interest debt, typically principle carried on credit cards. Then transfer money to an interest-bearing account for an emergency fund, with a high enough balance to cover living expenses for six months to a year. Dedicate additional disposable income to savings, investment and retirement goals.
Items you will need
- Budget worksheet
- Pay records
- Financial documents
- Consult and amend your personal budget as necessary when your lifestyle changes.
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