A budget should not be a list of random numbers to which you magically adhere to each month. Instead, choose a budgeting style that suits your personality. Some people prefer the pay-yourself-first plan, in which you automatically send off money to debt, bills, savings and investments every month and play with the rest. Others like the envelope system, with each envelope of cash representing a spending or savings category. Some people do better with percentages rather than exact monetary amounts and others could not live without a generous miscellaneous category.
Procure a budget worksheet with plenty of space or categories to track your income and expenses. You can use a blank sheet of paper, a computer spreadsheet with categories you fill in or a free online budget worksheet.
Fill in your regular monthly expenses under different categories. Typical categories include mortgage or rent, credit card payment, student loan, insurance premiums, electricity, gas, landline, cell phone, Internet, cable, groceries, water and trash service. Additional variable monthly categories include entertainment, subscriptions, medications, toiletries, cleaning products and clothing. Use monthly averages for bills that vary by season, or add a 10 percent cushion to key utilities.
Amortize irregular expenses. Establish a monthly quantity for categories such as gifts, charitable contributions, vacations, home repairs, car maintenance, investments, taxes and appliances.
Execute the same steps for income. Account for regular weekly or monthly income from employment, interest and gains on investment, as well as amortizing any irregular income like bonuses and gifts.
Total your columns. If you have too many expenses, review your categories where you spend the most. You may be able to lower insurance premiums by comparing fees from providers, change a daily double latte to a simple cup of coffee, save for a used car rather than a new car or put in some sweat equity to save money on home repairs.
Study your miscellaneous category. You want enough room to breathe so that your monthly budget does not feel restrictive, but you also want to have enough money to pay down debt, build an emergency fund, contribute to a retirement savings plan and make savings goals.
Items you will need
- Budget worksheet
- Financial records
- Consult your household budget after a few months so you can make necessary adjustments.
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