Don't let the thought of preparing a monthly budget intimidate you. Budgets aren't designed to make you feel uncomfortable or deprived, they are designed to give you complete control over your money by deciding where it goes. If you are considering a new home, car or starting a family, the organized structure of a budget will allow you to realize your aspirations and live a financially secure life.
Prepare a computer spreadsheet with plenty of column headings at the top and rows underneath. The headings will be used to list expenses and the columns will contain costs.
Define regular monthly expenses and place each in its own heading box. Examples would include rent or mortgage, car payment, insurance, school loans and credit cards, phones and utilities. Don't place dollar amounts in there yet, just the name of the expense.
Define annual and expected occasional expenses and give each its own heading. You'll need to be a bit creative here, but include an emergency fund; tax preparation fees; annual insurance premiums; health care co-pays; holiday, birthday and wedding gifts; car, home and appliance repair and maintenance; charitable donations; and other expenses that are expected or likely to come up throughout the year.
Give weekly expenses their own heading too. Fuel, groceries, church contributions, dining and tolls are a few suggestions, but also add a miscellaneous heading. Miscellaneous expenses, which can really add up, include daily coffee runs, lottery tickets, convenience and liquor store purchases and other day-to-day expenses.
Add headings that add fun to your life, such as vacations or a new television, and those that affect your future, such as savings, retirement and college funds.
Figure your fixed weekly, monthly, annual and occasional costs for all expense headings and place them in the corresponding row beneath. You'll need to do some financial calculations to convert weekly, monthly and occasional expenses to yearly totals.
Calculate your net take-home earnings to arrive at an annual figure and compare this with your annual expenses. If your expenses are higher than your income, go back and see where you can trim unnecessary expenses until it balances out. The ultimate goal is to have an income that is somewhat (if not considerably) higher than expenses.
Create monthly and weekly budget statements by diving annual expenses by 12 and 52, respectively. Having both monthly and weekly budgets may provide you with a different perspective and allow you to monitor certain expenditures more closely.
- You'll probably need to track nonfixed and variable expenses for a month or so to give you a better idea of what you are actually spending. A budget should be considered a "living" document, subject to regular changes and adjustments as necessary.
- You may find it helpful to prepare a similar spreadsheet to use as an expense tracking tool. Jot down daily expenses in a notebook or save receipts, and spend a few minutes each evening entering what you've spent under the appropriate column heading.
- Never count on money you don't have to balance your budget. Work bonuses, tax refunds or monetary gifts from relatives are subject to situational changes, and you may find yourself in a financial mess if these payments don't come through.
- Don't go crazy with unplanned purchases if you have money left over at the end of any period. Use it to pay off debt or invest it to put yourself in an even better financial situation.