It’s not difficult to make a budget (and stick to a budget) if you have a game plan. Getting your money organized will allow you to get the most out of your current income. It will help you avoid account draining late fees and overdraft fees, as well.
As you think about your financial priorities, try to keep things simple. Focus on the goal of telling every one of your dollars what to do.
Every Dollar Has a Job
The goal of a budget is to give each dollar a job. Without direction, money tends to disappear. Some portion of your income needs to go toward keeping a roof over your head, food on your table, gas in your car, and the lights on. You need to get to work, and if you make a car payment, that’s a significant expense. A phone is also essential; for safety and to communicate with family and friends. If you have children, make sure to include their necessities like formula, diapers, medical needs, daycare expenses, and tuition.
Write down your income. If you get paid salary plus commission, salary plus occasional bonuses, or you sometimes have overtime pay, include only your base pay or salary in this calculation. Also, add other regular income like child support. These numbers should represent your take home pay. Examples:
- Salary $1500 on the 1st and 15th of each month
- Child support $400 on the 25th of each month
Next, write down your fixed or recurring expenses for each month. Examples:
- Rent/Mortgage payment $1,000
- Groceries (what you spend each week x 4) $100 x 4 = $400
- Gasoline $200
- Utilities $200
- Internet service and satellite TV $150
- Car insurance $75
- Car payment $300
- Cell phone $50
- Credit card payment $100
- Gym membership $50
Total $2,525 per month
Now, subtract your fixed or recurring expenses from your monthly income.
$3400 - $2525 = $875
Then list all non-recurring or foreseeable expenses and subtract.
- Dental work $100
- Car repair/tires $100
- Total $200
$875 - $200= $675
Finally, subtract an amount to dedicate toward your savings. This can be a percentage or a set amount.
$675 - $200 = $475
There is $475 left in your budget. This is your discretionary or spending money. Now, you’ll need to decide how much money you want to spend on things that are occasional expenses and categories that aren’t essential. This money can be used however you wish, whether it’s eating out, going to a movie, or just buying a special pair of shoes you’ve been eyeing.
Peace of Mind
Setting and following a budget can help give you peace of mind. By learning how to make a budget, and then calculating and sticking to that budget each month, you are able to see where your money is going, and what you have available for savings and spending money. If you experience unexpected expenses, you have your savings to help with that, or even your extra spending money if needed. So, if you take just a little bit of time to set up a straightforward and realistic budget, it could give you peace of mind while moving you closer to your long term financial goals.
Everyone will have different circumstances to consider when determining how to budget. The above information is just a suggested example of how to build a budget. You will have to develop your own based on your income and expenses. If you need help, it's always a good idea to speak with a qualified lender.
Learning to manage a budget becomes a fairly simple task with a bit of practice. Take a look at The Basics of Budgeting to get started.