Creating a Budget in Ten Steps

Most people I meet do not know how much they make and have no idea how much they spend every month. You cannot expect to make ends meet if you don’t have a budget. It doesn’t have to be complicated and it is never to late to start. Try following our simple guide to creating a budget.

1. Take out a piece of paper and draw a line down the middle from top to bottom. On the top of the left side write INCOME. Split the right side of your paper into two rows by drawing a line down the middle from left to right. Label the top box FIXED EXPENSES and the bottom box VARIABLE EXPENSES. Click here to download a form.

2. List all of your sources of income on the INCOME side. Next to each source of income write down a conservative estimate of how much you receive every month after all of your deductions. (If you get paid weekly multiply your average net income by 4.3. If you get paid every other week multiply your average net income by 2.15. If you don’t know what your average net income is look at your last pay stub during the most recent calendar year. If your income has not changed you can just take your YTD net income and divide by 12.)

3. List all of your expenses that are the same every month in the FIXED EXPENSES box. (If your insurance and utility payments are not the same every month call your provider and ask them to put you on a budgeted monthly plan so that you pay the same amount every month.)

4. List all of your expenses that change every month in the VARIABLE EXPENSES box. Include food, gas, clothing, entertainment, retirement, emergency fund etc. Write the amount next to each expense.

5. List all of your infrequent expenses in the VARIABLE EXPENSES box. Include gifts, vacation, medical expenses, car maintenance etc. How much on average so you spend every month for your variable expenses? Write those numbers down next to each expense.

6. Add up your INCOME and write it down at the bottom of that section.

7. Add up your FIXED EXPENSES and write that down at the bottom of the box.

8. Take the difference between your income and your fixed expenses and write it next to the words VARIABLE EXPENSES. Circle that number.

9. Add up your VARIABLE EXPENSES. Write that down at the bottom of the box and circle it.

10. Do the two circled numbers equal each other? If your variable expenses are too high you need to adjust one of your sections. Increase income or decrease one of the expense boxes.

Share your budgeting tips and advice in the comments below.

Remember creating a budget is a waste of time if you don’t follow it and adjust it regularly!

  Tags: Financial Freedom