Personal Budget

To create a budget that works and allows you live a comfortable and happy life, you need to get a firm handle on what you’re currently spending, what you can afford to spend, and what your priorities are. Before you embark on making a budget, find a good template you can use to fill in the numbers for your expenses and income.

Before you begin, gather up all your financial statements, including:Bank statements, investment accounts, recent utility bills, receipts from the last three months and mortgage or auto loan statements. You want to have access to any information about your income and expenses. One of the keys to the budget-making process is to create a monthly average. The more information you can dig up, the better.

How much income can you expect each month? If your income is in the form of a regular paycheck where taxes are automatically deducted, then using the net income (or take-home pay) amount is fine. If you are self-employed or have outside sources of income, such as child support or Social Security, include these as well. Record this total income as a monthly amount.

Write down a list of all the expenses you expect to have during a month. This list could include: Mortgage payments or rent, car payments, insurance, groceries, utilities, entertainment, personal care, eating out, childcare, transportation costs, travel, student loans, savings, etc. Use your bank statements, receipts, and credit card statements from the last three months to identify all you are spending.

Fixed expenses are those mandatory expenses that you pay the same amount for each time. Include items like mortgage or rent payments, car payments, set-fee internet service, trash pickup, and regular childcare. If you pay a standard credit card payment, include that amount and any other essential spending that tends to stay the same from month to month.

If you plan to save a fixed amount or pay off a certain amount of debt each month, also include savings and debt repayment as fixed expenses. 

Variable expenses are the type that will change from month to month, such as groceries, gasoline, entertainment, eating out, and gifts.

Start assigning a spending value to each category, beginning with your fixed expenses. Then, estimate how much you’ll need to spend per month on variable expenses.

If you’re not sure how much you spend in each category, review your last two or three months of credit card or bank transactions to make a rough estimate.

If your income is higher than your expenses, you are off to a good start. This extra money means you can put funds towards areas of your budget, such as retirement savings or paying off debt. After you have set up your budget, you must monitor and continue to track your expenses in each category, ideally every day of the month. The same budgeting spreadsheet or app used to make your budget can also be used to record your expense and income totals.

Recording what you spend throughout the month will keep you from overspending and help you identify unnecessary expenses or problematic spending patterns. Take a few minutes each day to record your expenses, rather than putting it off until the end of the month. 

The Balance