Do It Yourself: Budgeting

A personal budget begins with calculating your monthly income and expenses.

A personal budget begins with calculating your monthly income and expenses.

Instead of spending money on books or expensive budgeting software to create a personal household budget, prepare a budget on your own. Collect all income statements and bills for the household, then calculate how much money comes in, how much goes out, and how much is left at the end of the month. Preparing a budget will show you how well your actual spending matches up with what you can afford.

Calculate your net household monthly income after taxes and all deductions. If you are paid every other week, multiply your biweekly pay by 26 and divide the result by 12 to get your monthly net income. Round to the closest dollar. Be as accurate as possible to ensure your budget reflects your actual household income.

Total your monthly expenses, including rent or mortgage payment, insurance premiums and other recurring payments, along with amounts spent on groceries, gas, personal grooming and entertainment. If you direct money to savings, include the amount in this total. Use your bank and credit card statements to find any expenses you might overlook.

Calculate your discretionary income by subtracting your total monthly expenses from your total net income. Discretionary income is what remains at the end of the month after all expenses are met. Couples may save it, spend it, or use it to pay down debt in order to reduce long-term interest payments. Many young couples completing their first budget find there isn't any money left at the end of the month. If this is the case, look for ways to decrease monthly expenses and increase household income.

Look for places to cut costs if necessary to stay within your budget. Begin with entertainment expenses, including dinners out, gym memberships, travel and cable television. Brainstorm ways to replace these activities with less expensive options rather than cut them out entirely. Contact your financial institution to discuss consolidating debt and reducing interest rates where possible. Consider increasing income through a part-time job, turning a hobby into a business, or getting a roommate or tenant to help with housing costs.


  • If you haven't already done so, add emergency savings to the top of your list of expenses. Use these funds for unexpected expenses, such as home or car repairs. Contribute monthly until your emergency fund equals at least three months of living expenses.


  • Don't overestimate your income by neglecting to account for income tax and deductions. Use your bank statements to record your actual expenses on your budget so you don't underestimate them. Where possible, build savings for entertainment and vacations into your budget so you won't be tempted to pay for them with credit cards. Above all, avoid large impulse purchases that blow your budget. If you really want to make a larger purchase, add it to your monthly expense category and start saving for it.

About the Author

A former financial adviser with more than a decade of experience in personal finance and small business banking, Sarita Harbour is a professional writer specializing in personal finance, small business, technology, and content marketing techniques. Her writing appears online at sites such as Yahoo! Homes and Bob Vila. Harbour holds a bachelor's degree in psychology and computer science from the University of Guelph and the Personal Financial Planning designation from the Institute of Canadian Bankers.

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