Budgeting - The Basics

Just the word "budget" can make most people cringe.  It seems like such a dull and boring task but it really is the foundation for managing your money.  You simply must have knowledge of your income and expenses to be able to manage your money. 

There are many methods of putting together a budget.  You may choose to use software like Quicken, a spreadsheet like Excel, or simply a piece of paper and pen.  No matter, the method is the same.  You need to begin the budget process by determining all your income and your current expenses.  After this is completed, you are then ready to begin planning what your expenses will be by setting a budget goal for each expense.  Here is a budget worksheet you can use as a guide. 

First, what income do you have.  Write it down.  Start with weekly amounts because then you can build up to the monthly amounts.  Put down income from all sources.  Do not include income that is variable such as overtime unless you can guarantee that you will receive it on any given week.  You want this income number to be very solid.   Total up your income by week and by month.

Second, make a list of expenses, again by week and then totaled by month.  Write down everything you spend money on, both fixed expenses such as mortgage, rent, utilties, phone, debt payments, etc.  Make sure you include amounts for things such as eating out, morning coffee, clothing, manicures.  This may actually take some time to put together if you have never tracked your expenses before.  Save all receipts, (even those from the ATM) to help you.  Basically, if you spend money on it, it needs to be on this list. 

Third, make a list of the expenses you pay that are not on a monthly basis.  This would include things like homeowners dues that are paid annually, insurance, auto tag renewal, etc. 

Now you will want to compare your income to your expenses.  Sometimes just having things in writing can come as a big shock.  Give these numbers some time to sink in.  Once you have identified your current income and spending, then you can more forward to putting together a budget, which is really nothing more than a spending plan.

Some of your expenses will be fixed such as your mortage, rent, phone bills, etc.  Other expenses will be variable including food, dining out, clothing, and gas.  You will need to set spending caps on each of these variable categories.  This is where the budget comes into play.  You plan to only spend say $500 on groceries per month. 

So what are the ideal ratios for each category?  The experts recommend that housing expenses (mortage or rent, utilities, etc) not be more than 30% of your take home pay (your total income). 

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