Setting up a monthly budget is an important part of managing your finances. It takes only a few simple steps to create a budget and keep track of your earnings and your spending. The first step to creating an effective budget is to break down your expenses into categories. Once you have a clear budget breakdown in place, you can begin to clarify your goals, stretch your income further, increase your savings and avoid going into debt.
Determine your net household income – the amount you take home after taxes. This includes monthly take-home pay, interest, income from investments, etc. If you are self-employed or are earning different amounts each month, take an average over three or four months.
Record all of your households' daily expenses over two or three months. This includes large expenses, such as mortgage and utilities, and smaller expenses, such as cups of coffee or school lunches. You may want to record daily expenses in a small notebook and enter them onto a spreadsheet at the end of each week using a budget template (see Resources), or use a program such as Microsoft Money or Microsoft Excel.
Make a list of your necessary expenses. This may include mortgage payments or rent; school expenses; insurance; utilities, transportation costs, such as car maintenance, gas and train tickets; regular debt payments, such as credit cards; and recurring expenses, such as food.
Make a list of your long- and short-term goals. A short-term goal may be to buy a new coat for winter or take a vacation; a long-term goal may be to save for retirement or for a child's college education.
Create four columns on a computer spreadsheet or a piece of paper. Label the first "necessary expenses," the second "extra expenses," the third "short-term goals" and the fourth "long-term goals."
List each expense, going down the rows, and record the amount you spend in the appropriate column. For example, record the amount you spend each month on rent or mortgage in the "necessary" column; record the amount you spent on going to a movie or buying a cup of coffee in the "extra expenses" column.
Add up all of your expenses at the end of the month and subtract them from your income. This is the money you have to spend on your goals. List each of your goals on your spreadsheet. Determine how much of the money you have left over you would like to save for each goal. Enter that amount in the correct row.
Create a new spreadsheet or list each month. If you have no money left over at the end of the month to spend on your goals, you will need to cut back on your expenses for the next month. The budget breakdown will let you see where you can cut back. For example, you may need to spend less on some of the items in your 'extra expenses' column.
Items you will need
- List of Earnings
- List of Expenses
- List of Goals
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