If you're approaching establishing a budget with dread and trepidation, don't. Making a budget isn't as hard or painful as it may seem. Just a few minutes each month or week playing with numbers and paying attention to where your money goes and where it comes from will help you meet your financial goals, from kicking that student loan debt to the curb to saving up for the down payment on your first house, to putting a bit aside for a fun vacation. A budget will also help you plan for unexpected expenditures, such as a doctor's visit when you're ill.
Items you will need
- Pay stubs
- Computer with spreadsheet or budgeting software (optional)
Keep track of your spending and expenses for a least one month. If you don't want to end up with a mountain of receipts at the month's end, record every purchase, its date and the amount in a notepad or on a spreadsheet.
Total up your income for the month, using your pay stubs, your partner's pay stubs or any other proof of income.
Leave room in your budget for the unexpected. You may choose to allocate about 10 percent of your income or however much you can afford to an emergency fund, which would cover items such as medical bills, new tires for your vehicle or appliance repair. If you don't have an emergency fund to begin with, you may want to direct some of your savings money into it until you reach about $500 or $1,000, then put about 10 percent of your income into it each month.
Keep the occasional expense in mind. If your car insurance is due twice a year, divide each payment by six and list that as a monthly expense. You may also want to set aside some money each month for birthday gifts or to save for holiday shopping.
Make paying down your debt a priority in your budget. You can't move forward financially until you've loosened the chains of credit card and student loan debt. Set a debt-free date and figure out your monthly payment based on the interest rate and when you want the debt paid off.
Add space for saving into your budget. You can save for retirement, a big vacation or event, or just to build up a nest egg in addition to your emergency fund. How much you are able to put aside for saving depends on how much debt you have and how much your other expenses cost in comparison to your income.
Add up all your actual spending for the month, as well your emergency fund, occasional expenses, savings and expected debt payments. Compare your expenses to your income. If your income matches, you are doing all right. If it is more than your expenses, consider placing the extra amount into savings or using it to pay off debt. If your expenses are more than your income, you'll have to trim. Start with the least important things, such as a daily take-out lunch or a weekly trip to the movies.
List your anticipated expense amounts in each category on a notepad or a sheet in a spreadsheet. If you have budgeting software, go ahead and record your amounts in that. Also write down your anticipated income each month. As you receive your paychecks, purchase items or pay bills, record the actual amounts next to the anticipated ones.
Check in with your budget monthly or biweekly to make sure you are sticking to it. If you find yourself going off track, make changes, either to your budget or to your spending habits.