Creating a Budget

Many people are not fully convinced that they have a need for a budget. Their reasoning goes something like this. "All I need to do is spend less than I make, and that's just common sense, so why in the world do I need a budget?" If this sounds like something you have said in the past, you probably have a bigger need than you think. Other people fully realize their need, but they simply have no idea where to start. With this in mind let's walk through the basic steps of creating a personal budget.

Budgetary Steps

o Create a list of all of your monthly income. If you have
any sources of income that are received annually then simply
divide this number by 12. It is important to list all sources
including alimony, child support, side jobs, etc. This figure
will set the cap on your total budget.

o Create a list of all your monthly expenses. If an expense
occurs less frequently, simply prorate it to fit a monthly
format. Be sure to include such expenses as; housing, food,
transportation, utilities, entertainment, etc. It is wise to
track your spending for a full month during this stage of
budgetary planning. Save your receipts and each evening
write down your expenses for the day. This is the best way
to gain an accurate reflection of actual expenses.

o Determine if your income covers all of your current
expenses. If the answer is no, then expenses need to be
reduced.

o Adjust expenses. This can be done in a variety of ways.
Depending on the amount of the shortfall, it may be a simple
matter of reducing some discretionary spending, such as
entertainment, or food.(i.e. the number of times you eat out
in a given month) If the deficit is larger then it may be a
matter of downsizing your vehicle or your living arrangements.
If your income covers all of your expenses then this is still
a good opportunity to trim some of the fat off of your
spending habits. This can help free up extra money for a
variety of reasons ranging from, college educations for the
kids, to a nice anniversary trip with your wife.

o Add new categories if necessary. Three areas that are
often overlooked are 1) debt reduction 2) retirement savings
and 3) emergency savings. An emergency fund will ensure that
there is an adequate amount available to cover an unforeseen
even (i.e. the car breaks down) should it arise. This will
prevent the use of credit which can quickly break a personal
budget.

Source: www.personal-budgeting-and-personal-saving-tips