Budget Planning and Analysis

If you can project your annual income and expenses, it's relatively easy to create a budget. Start with your income, which will make it easier to make accurate spending decisions, suggests the Better Business Bureau. Then calculate your expenses, dividing them into fixed and variable categories. Fixed expenses are expenses that are the same each month, such as car payments, or that occur every month, such as groceries. Variable expenses are those which change each month, or don't occur regularly. You can place monthly expenses like groceries in the variable category, if you can't project an average monthly figure.

If you're concerned that you may not have enough income to pay your monthly bills, save for retirement, or handle emergency situations, you can create a budget that guides your spending. As you enter each expense in your budget, subtract it from your total income or available cash. For example, if you earn $5,000 per month, you can subtract each entry into your budget from that figure. If you want to save $500 per month, you'll only have $4,500 per month to spend, and that will be the figure from which you deduct expenses.

If you're confident you have enough money to pay your bills, accrue savings and meet emergencies, you might want to create a budget that tracks and analyzes your financial situation in real time. Create a budget that projects monthly expenses, then enter in your actual spending each month. Compare these two columns at the end of each month to determine if you are managing your money wisely.

Having real-time numbers and annual projections may alert you to areas where you're overspending. Basic software spreadsheets let you project these numbers using simple formulas. For example, if you want to see what you might spend on dining out during the course of a year, create a running total column which tracks the amount of money you've spent on dining as you enter that information. Project your annual spending by adding an average monthly spending column that divides the numbers in the running total column by the number of months that have passed. For example, if you have spent $125, $150 and $175 on dining in January, February and March, your running total is $450 and your average monthly spending column will show $150 per month. Add one more column, which multiplies your average monthly spending column by 12 months, and you'll see that at your current rate of spending, you fork out $1,800 on dining out each year.

If you include credit card payments in your budget, make sure not to deduct the same expenses twice. For example, if you record a $250 payment for groceries you made with a credit card payment, and you pay all of your credit card bill each month, you'll "pay" for your groceries twice each month. Include credit card interest earned -- not purchase payments -- in your monthly budget if you plan to pay your balance each month. Record purchases made with a credit card elsewhere.

If you're so far behind on paying down credit card balances that you're carrying debt you accrued last year, you'll want to enter your monthly payment to the card company into your budget, rather than the interest earned. Set up a separate area on your spreadsheet to track credit card interest, so you can note how this affects your net worth. Include your credit card balances at the beginning of the year, monthly payments and year-end balance on credit cards. This tracking and analysis may show you that using your savings to pay down credit card debt will save you thousands of dollars in interest each year.