For many of us, our money runs out close to or before the next paycheck comes. Creating a simple budget can help stretch your income as well as leave you extra for unexpected expenses or for luxuries, such as vacations, that you never felt you had the money for before.
Steps to creating a budget
- Determine how you spend your money. Take a few weeks to track your money. Write down every time you spend money to see where it is going. Even though it may only seem like a few dollars today, things add up quickly. For example, stopping for a donut and a cup of coffee each morning can add up to $400.00 per year. Going out to lunch even 2 times a week can add an additional $1000.00. Cutting down on the little things can provide enough money for you to enjoy a modest vacation. If you find it impossible to write down every transaction, ask for a receipt wherever you go and keep them in one place. That way you can add them up each night or weekly.
- Set priorities. What are the items you simply won't do without. If your donut and coffee are a necessity that you feel you just can't do without, keep it in the budget. If you can save by making coffee before you leave in the morning and buying a box of donuts you can bring with you, then you can save some money each week. (Better yet, maybe a hard boiled egg and some yogurt.)
- Write your goals down. Studies show that goals that are written down have a better chance of becoming reality than goals that are thought or spoken. Determine your financial goals for the next year as well as for the next five years.
- Write a list of your monthly expenses. Include all your major expenses, such as mortgage/rent, electric, phone, car payment, insurance, transportation, entertainment, and all other bills that come up on a regular basis.
- Write a list of incidentals that you spend. This should include all the little expenses. You should have an idea of these if you kept track of your spending over several weeks.
- Write a list of your income.
- Balance your income vs. expenses.
- If you do not have enough income to cover your expenses, you need to look over the expenses to determine where you can cut back. Cutting back does not necessarily mean having to go without or moving to a smaller place to live (although this might be necessary if your income and expenses are way off.) Check over the every day spending to see where you might be able to cut corners. Many people spend thousands of dollars each year on trips to convenience stores, eating lunch out or buying soda and snacks from the vending machine.
- If you have money left over, create a fund for unexpected expenses and open a separate savings account for this. These expenses can include: car repairs, emergency travel (if you live far away from your family), medical expenses, gifts, a new baby or other changes in lifestyle, new appliances, or a new car.
- There are a number of sites on the internet that provide budget worksheets to help you with the above process. Vertex42.com has a downloadable home budget worksheet.