Your Personal Budget and How to Create One
Tough times mean that Americans must watch every dollar spent if they’re to have enough money on hand to meet expenses. Relying on credit cards as a back up is a recipe for disaster, therefore creating a personal budget is an essential step in managing your finances.
The word “budget” freaks some people out as they think “constraints” whenever the word is mentioned. Certainly, a budget does restrict spending, while freeing you to concentrate on making money without worrying how your bills will be paid.
Read on for some helpful tips on how to create a winning personal budget.
1. Tabulate your monthly income. You may get paid weekly or bi-weekly, but calculate your income on a monthly basis. This is import as a monthly calculation enables you to gauge all income including pension funds, interest and other monthly income. If you are paid weekly, multiply your income by 52 and divide that by 12 or multiply your weekly income by 4.333 to get your average monthly income.
2. Review your bills and expenses. What do you spend on everything each month? You’ll need to review every single bill that comes across your desk on monthly basis including your mortgage, phone bill, Internet, cable, electricity and gas, and other expenses. Some bills, such as your life insurance, may be billed quarterly. Other bills such as credit cards and medical expenses may vary from month to month. Review your bills for the past three months and divide these by three to get a monthly average.
3. Be mindful of miscellaneous expenses. Some bills such as what you pay to fill up your car, groceries, entertainment and eating out are harder to track. Nevertheless, review what you’ve spent for the past three months and divide that total by three to get a monthly average. Donations including church and charitable contributions can be included here as well. Add that amount to your expenses.
4. Seasonal and other expenses. There are other expenses incurred throughout the year that may not be easily recalled. These expenses include clothing purchases, school lunches for your children, sports and club activities, back to school items, yard maintenance, children’s allowances and personal grooming for people and pets alike. Savings and retirement funds can be included here too. Add this amount to your expenses.
5. Subtract and review. Subtract the total of your expenses from your income to determine what is left over each month. If you’re in the black, meaning you have money left over, then you’re in good shape. If you’re in the red, spending more money each month than what you bring in, then you have some work to do.
Cleaning Things Up
You can track your expenses with a software program or use a financial planner to keep your budget in shape.
If you fall short each month, then you’ll need to have a family conference to discuss two things: how to cut expenses or raise your income. Perhaps both. Adjust your budget as needed, but stay within your means to avoid long-term debt. If you begin run into the red in any given month, determine to make it up the following month. A budget is a tool that can give you the freedom to make sound financial choices. Make it too constraining and you and your household members will fail to keep up with it.