Steps on How to Create a Budget

Set realistic goals and stay within your budget.
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You may wonder where does your hard earned money go each month, especially when expenses are flying through the roof. Making ends meet becomes even more challenging when you have many bills to pay. Fortunately, you can keep track of your expenses by creating a budget. With a smart budget plan, you’ll be able to crunch your numbers more effectively while enabling you to spend within your means and save for a rainy day.

Step 1

Identify and compute your annual net income or take home pay. Divide the amount by twelve to get the monthly amount.

Step 2

Create a list of all your monthly regular or essential expenses such as rent or mortgage payments, utilities, food and gas. These items should make up your priority list because they are the bare necessities for you to survive or function normally.

Step 3

Determine and set forecasts on how much your priority list will cost monthly. Rent or mortgage payment is a fixed amount while other necessities such as food, clothing and gasoline can vary depending on usage and other external factors such as price increase of prime commodities that may affect them. Make the necessary allowance and take note that your monthly budget may vary depending on these factors.

Step 4

Set aside and list an amount that you'll allocate toward savings or investments. Make sure to set this amount aside before you spend your money on things that you can do without. This way you'll have money to cushion any future financial blow or unexpected expenses.

Step 5

Write down and add your “wish list” or items that you spend for, but don't necessarily need or things that you can do without. These may include gifts, books, recreation and other items that pop up every now and then.

Step 6

Create a budget sheet. As long as it shows all your income and expenses, the budget sheet will suffice. Make sure to include a column for the item description and amount. Put your net income amount at the top of the item description column and then write down your priority list with its subtotal. Then add your wish list with its subtotal. Deduct the priority list and wish list subtotals from the net income. If your budget sheet posts a negative value, adjust your wish list so that you'll have contingency of at least 10 percent of your monthly income.

Step 7

Follow your budget and commit yourself to establishing healthy balance between spending and saving. One source of savings is the contingency amount. If you can manage to stay within your limits, then your contingency will remain untouched. You can invest it wisely or deposit it in your bank. Make this your monthly goal.

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