How to Make a Budget
It's time to learn how to make a budget. If you want to tell your money where to go, make a monthly budget. A budget is simply an itemized, written plan of how much money you have coming in and where it is all going.
No one likes to do this and the hardest part is just sitting down and doing it. Coming up with a well planned budget is not only integral to establishing and maintaining a frugal lifestyle, it is vital to your future financial success.
There are various ways to learn how to make a budget. Budgets can range from a simple sheet of paper with your income and expenses listed to online budget software.
A budget will provide you a guidance system and the discipline to stop overspending. It will also help in the decision making process when it comes time for purchasing big ticket items such as a car or household furniture.
No matter what budget plan you use, make sure it works for you and don’t be so strict as to not budget in some fun things.
Here is a straightforward way to learn how to make a budget:
How to Make a Budget Step One: Record All of Your Expenses
For the next month, preferably two, you will write down every single expense you make, no matter how small.
To help record your small expenses, keep a small notebook with you and save every receipt. If you spend $ 25 at Home Depot, put down the specific items, not just $ 25. For the larger and recurring expenses such as mortgage/rent, utilities, food, etc., pull out your checkbook and bank statements.
At the end of a month or two, you will have a good average of where your money is going.
How to Make a Budget Step Two: Total All Of Your Income
Write down how much net income you have coming in. If you and/or your spouse are on a fixed salary, this is as easy as looking at your pay stub to see what you have after taxes. If you work on commissions, tips or any other type of variable income, try to look back over the past year and figure an average monthly income. Also don’t forget secondary income such as interest, dividends, alimony and child support.
How to Make a Budget Step Three: Deduce All Expenses From All Income
To assist you in recording all of your expenses and sources of income, use these free printable budget worksheets
. As per the budget sheets, total all expenses
and put this total in the Total Expense Block. Total up all income
and put this in the Total Income Block. Subtract total expenses from total income
and record this number in the Difference Block.
If the difference is a positive number, you should be congratulated because you are living within your means. You can concentrate on how to use the extra money left over for investments, etc. You can also look at the expense part of the budget to see where you can cut back to have even more money left over at the end of the month. If you have certain goals such as a family vacation to Disney World or to the Grand Canyon, the budget process is an excellent way to accumulate the money you need.
If you are like the majority of us, your difference number will be negative, meaning you are spending more each month than you make. This is where the real work begins but don’t be discouraged because there are ways to address this.
Because many of your expenses are fixed such as the mortgage/rent, car payment, student loans, etc., you will probably not be able, at first, to do much cutting back here.
Instead, look at your recurring expenses to have the best results at cutting down or eliminating expenses. Using the free printable budget worksheets, look at each category to see where you can cut back or eliminate expenses.
Start with the biggest expenses such as food, transportation, etc. If you are married, do this with your spouse so that you both can come up with different ideas and areas that you can agree on.
On this website, you will find help in how to reduce your expenses on specific areas such as food, transportation and entertainment, to name a few.
If how much more you are spending compared to what you are making is really large, you may have to make some hard lifestyle changes. We are speaking about survival mode here.
You may have to consider moving to a smaller, less expensive home or apartment or selling your home and renting. If you are a two car family, you may have to think about going to one car. Drop your cable service. This can save you $ 70 per month. Use cash or a debit card rather than your credit cards. These are just a few examples of things to consider. Make an effort to cut or eliminate expenses in every category except fixed amounts such as your mortgage/rent.
How to Make a Budget Step Four: Adjust
Record your expenses on a weekly basis in order to track your actual expenses versus what you budgeted for specific categories. At the end of the month, look at the overall budget to see where you stand.
If you have overspent in certain areas, make adjustments for the next month to correct the overspending. Give your new budget three or four months to work because you will be making some adjustments during this time to get the budget working for you.
No matter how tight money is for you, do your best to budget in some fun items. There are many inexpensive ways to have fun and be entertained.
Over time as your expenses come in line with your income, try to budget more money toward any credit card debt you have. Some extra payments will get this interest generating debt down quicker than you think.
Try to give some priority to putting what you can into your emergency fund (one of the budget categories). Once this gets built up, you will not have to use your credit cards as much or at all.
In order to keep your budget constantly in mind, it is a good idea to keep a small size copy of your budget in the car or in your purse. At least review your current budget before going to the grocery store, shopping, eating out/movies, etc. If you find you have overspent in one category, try and reduce another area of the budget to make up for the overspending.
At all times, stay flexible with your budget. It will change from month to month which is why you must review it on a monthly basis.
You now know how to make a budget and you have a plan to direct your money where to go. You are spending on purpose on paper before you even get your next paycheck. By having and following a budget plan you have laid the foundation for living the frugal lifestyle.
By combining your budget plan with learning the many ways of cutting your expenses through frugality, you will find that sooner than later you will be living within your means and enjoying the freedom and lack of stress that is a result of your dedication, discipline and hard work.
Budgeting Money Tips
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