Budgeting

Developing a budget is something that is very simple to do and can give you a way to see where all the money goes. You can draw out a simple budget on a piece of paper or you can use software for more complicated finances. Either way, a budget is simply a way to account for what comes in and what goes out. Once you have the overall picture of your finances, then you can use the budget to aid a plan for saving for an emergency fund, retirement, college education, etc.

To begin a budget, you need two calculate two figures: what is coming in and what is going out. Lets go step by step to create a basic budget:

1. On the left side, write “Income.” This is the “in” side, and includes money you receive from any source. Make a list under income of your receivables, such as salaries and wages, loan payments (money you are receiving on a loan), interest earned, gifts, bonuses or any amount you expect to receive over the period of one month.

2. On the right side, write “Expense.” This is where you keep track of the expenses or where you spend the money. Principally, this includes rent or mortgage expense, payment on loans or credit cards, and automobile expenses. You can catergorize your expenses such as clothing, transportation, food, entertainments, personal care, computer, medical, insurance, and utilities. Your list may include other categories so it is helpful to have the past month’s receipts and bills on hand. If you don’t know an exact number, make an estimation for that category.

3. Sum up the totals of both sides. Your “Income” category should exceed your “Expense” category. If not, you are in trouble. You may be getting by on credit, but in the end, you will find yourself in greater and greater debt if your expenses always exceed your income.

4. The difference between the two is what you keep or save. Take a look at this figure and see if it reflects your goals. If you want to go on a $2000 vacation and save just $100 a month, it will take you almost two years to save enough. But if you put aside $250 a month, it will take you just eight months to pay for the vacation.

5. Also, take a look at what you have already saved. It is recommended to have at least 3 months of living expenses kept as an emergency fund. Multiply the “Expense” side by 3 to get what you should have saved somewhere. If you have not saved this much yet, now is a good time to start putting aside some on a monthly basis.

Hopefully you now have a better picture of your finances through the budgeting tool. You can develop estimates for future income and expenses using the first sheet as a guide. This will turn into your budget, and you can keep checking your income and expenses to keep yourself on the financial track. If you overestimate your budget, you will have money left over, and that’s great! You can put it away and save even faster! If you underestimate your budget, you may find that you’re spending more than you want to. Don’t be too hard on yourself, but try to use the budget to develop reasonable guidelines for yourself so you can be happy, successful and still achieve your financial goals. Best of luck!