How To Create A Budget That Works
If you are planning to control your finances, set aside some money in a savings account or simply to get out of debt, you need to start off by creating a budget. Here are some tips to get you started.
1. Tabulate your income in a month after taxes. What's left will be your take home pay. When calculating your income, you should include not only your fixed salary but also tips, side income, investments, etc.
2. Tabulate your expenses. It would be an excellent idea if you could track your daily expenses for a month but if you do want to start on your budget faster, make an estimate of all your expenses. This must include everything such as bills, groceries, gas, clothing, medical expenses, fast food....everything.
3. Define budget goals. Decide in monetary terms what you want out of your budget. To have $1000 in the bank by the end of the year? To pay off your $2000 credit card debt in 6 months? To buy that 52 inch TV? How much will that cost? Now divide it into monthly installments, e.g. if your goal is to have $1000 saved in the bank in a year, you'll need to set aside $84 each month.
4. Organize your expenses into two main categories: Necessity and Luxury. Subdivide Necessity into Electricity, Water, Gas, Petrol, Groceries, Loans and any other expenses you deem necessary. Subdivide Luxury into Clothing, Entertainment, Fast Food, Cable and any other expenses you fell is a luxury. It is up to you what you decide to place into each category. Just be honest about whether it truly is a necessity or luxury.
5. List down the expenses you tabulated in each subcategory. Round it out to the nearest ten dollars, e.g. $200 a month for gas, $300 for groceries, $50 for entertainment, etc. Now add it all up to calculate your total expenses in a month.
6. Now, tally up your budget. Deduct your total expenses from your total income and calculate the balance that you are left with. If the balance equals or exceeds your monthly goal, that's great. If the balance is less than your monthly goal, scan through your list of expenses and cut down on the amount spent on some Luxury items until you have reached your goal amount. This will then be the Blueprint for your expenses every month and now you'll need to exercise willpower to ensure you never exceed the amount you've listed in your Expenses.
7. Track your spending daily. Keep a small notebook in your pocket at all times and jot down any money spent.
8. Keep track of your expenses in a worksheet. I have uploaded an excellent Personal Budget Worksheet that you could use. By tracking your expenses, you'll be able to check if you are on track and the balance left for you to spend.
9. If you follow this budget closely, by the end of the month you'll have a balance equal or exceeding your monthly goal. Congratulations!!! Now set aside the balance into a separate savings account. The best thing to do is to open a Joint Account with your spouse or someone you can trust, with a Standing Instruction to the bank that withdrawal requires both signatories. This way you'll have a 'Buddy' to ensure that you do achieve your goals.
Good luck in living your budget.
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