A line item budget can help you focus on exactly where your money is going each month by detailing your total revenue stream and allotting it out in increments for specific expenditures. The budget assigns monetary value to specific categories and the disperses funds for those categories. In business, categories might include payroll, construction and projects. In an individual's line item budget, however, the categories will be more personalized. Creating a line item budget can help you get a handle on where your money is needed and where it is going.
Figure out your total monthly household income. Count only net proceeds and spendable outside funding that you can depend on receiving each month.
Make a list of all bills that must be paid on a monthly basis. If you have bills that come due quarterly, such as car insurance, break the total quarterly amount into three monthly payments so you can enter them in each month's budget. Include a ghost bill that will be used for incidentals such as doctor visits, flat tire repair and other things that come up in life. This item should have a consistent amount itemized each month -- if you don't use it, roll it into savings. In addition, decide how much money you want to invest or put into savings each month, and list that amount with the rest of the bills.
Use a computer spreadsheet or a lined notepad to itemize and break down all monthly expenses. Divide each category into subcategories for better tracking. For example, if you pay utilities, make a line item for utilities with the subcategories power, gas, water, sewer, garbage collection and so forth.
Next to each entry place the amount of money you are budgeting for it out of your monthly income. Examine bills from the past six months to determine about how much each one cost and then use that figure to project what you will need going forward to get them paid.
Place any leftover revenue in the savings/investment category. Leave leeway to adjust line items as needed. If one month you need an additional $20 for power, you will borrow the $20 from another area. For example if you borrow $20 from groceries to cover the larger than average power bill, you will need to cut back on food expenses by $20 for that month.
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