How to Create a Budget
Choose a Method
Choose a method for building your budget. It can be a simple date book, your calendar on your computer or PDA, or even a notebook with a secondary calendar as reference. There are books available that will also provide you with space to write down your budget and lists to prompt you on what should be included. These are not necessary unless you feel that they will provide you with the extra nudge you may need to get started.
Make your Lists of Outgoing Funds
Monthly
Make a list of every single expense you incur in a given month. The monthly list could include, rent, mortgage, savings, electricity, heating gas or oil, water, sewer, cable, satellite, phone, cell phone, vehicle loan, gasoline, house and vehicle insurance, health, insurance, credit card payments, revolving loans, child care, garbage pickup, and any other bill that you pay on a recurring monthly basis. Groceries and toiletries can be included here, or under weekly.
Recurring Other than Monthly
Next, make a list of any bills that are paid quarterly, yearly, or on a recurring basis other than monthly. Some bills that may fall under this heading include land taxes, additional insurance policies other than those already listed, children’s school tuitions, and veterinarian care for your pets such as yearly immunizations, gym fees, membership dues for any organizations you belong too, house cleaning services, yard care, and snow removal.
Daily and Weekly
Do you have certain money eaters that crop up nearly every day or once a week, such as that large cappuccino that you purchase every morning on your way into the office? How about your son or daughter’s allowance, or fees paid for either them or yourself to participate in sports and activities? Other expenses under this category could include movie rentals and theatre fees.
Miscellaneous
This can be the toughest part of your budget to figure. Think of all those little extras that we never fully recognize. Clothing expenses, new tires, oil changes, and other automobile repairs, magazine and newspaper subscriptions, dining out, presents for family and friends during the holidays, birthdays, anniversaries, and weddings.
Putting the Lists to Use
Take your first list, monthly expenses, and add corresponding due dates. Split your bills into the four weeks of the month or at least twice a month, using your due dates as a guideline. If a bill is to be paid by regular postal mail, consider this when designating a date in your calendar to this bill.
Next, transfer your list to your calendar of choice. I use the day after payday as the designated bill-paying day each week. Input your bills to their nearest payday before their actual due date.
If you were financially fit, I would recommend paying all bills at least one month before they are due. This will allow you to forego any worries about fees for late payments, which can often crop up if you are ill or away on vacation for a week or two.
Your monthly bills can then be updated for the following year’s worth of months. If you are paid monthly, this step will be complete. If you are paid weekly or every other week, you will notice, that you have four extra weeks each year. These can be used in several different ways. If you are self-employed or take vacations with no pay, you can use these weeks for those times. They could also be used to cover quarterly or yearly payments, such as those listed above.
Once your monthly bills are listed on your calendar, go back and incorporate your recurring, daily and weekly, and miscellaneous bills into your calendar. When assigning a dollar value to miscellaneous bills and expenses, be fair. If you must, build yourself a separate small budget, listing everything you can think of that may fall under this category throughout the year. Add up the total, and use that as your structure for incorporating the needed funds into your month-by-month budget.
Incoming Funds
Once you have a visual aide of where your money is going every month, take a realistic look of what money comes in each month. Paychecks are of course the first item you will think to include. If your household is more than a one-income family, include both spouse’s and/or partner’s paychecks. Do not overlook items such as investment income, bonuses, child support, annuities, and funds from a second or part-time job. If you regularly receive money from any source, include it as expected income.
Next comes the most daunting part of any budget. Compare your incoming funds to your outgoing. If you are fortunate, your incoming dollars will be larger than any outgoing costs. If so, take a realistic look at where the extra dollars are spent. If you cannot logically arrive at where it is being spent, be responsible and use this extra in a manner that will best benefit you. It could be placed directly into savings, or applied to a credit card or other interest hungry account to pay it down quicker, which will in turn save you even more money.
If the incoming is less than the outgoing, it is time to get creative. Consider what can be trimmed from your budget. If necessary, it may be time to consider a job change, or the added responsibility of a second job. If one partner is a stay at home parent, is it time for them to enter the workforce in some capacity? Are there any items that could be sold with the extra funds going towards paying off a portion of your debt, such as a second car that is rarely used?
Future Expenses and Unexpected Emergencies
Also, consider future expenses when organizing your budget. If your credit card debt is massive, or on the verge of becoming out of control, make the decision to close your accounts. This will keep you from charging any new purchases. Some debt companies urge consumers to keep at least one credit card for emergencies, and if you must, do so. Otherwise, also add a column to your budget called Emergencies. Make regular contributions to it until it reaches a limit you have pre-set. This can then be dipped into for those unexpected budget busters, with the added advantage of no interest. Just remember to pay back whatever you borrow from it as if it were a real credit card. If a new vehicle or change of houses is soon to be an issue, consider adding a column to your budget strictly for that purchase. This is a good way to recognize if your budget will be able to handle the added expense.
Keep a running tally each month, with the total amounts due, and what your payments were. Each month when the new bills arrive, write down what your new balance is. By constructing your budget in detail, you will be able to see what your money is accomplishing. This small detail can bring around the most anti budget-minded person, as it is factual proof that your budget is working.
