Creating a Budget

Last week I talked about some valuable lessons my husband and I learned by simply putting a budget in place.  This may seem like a simple undertaking and for the most part it is.  There’s really no right or wrong way in creating a budget.  However, honesty, discipline and determination are essential to your financial success.  Implementing a good budget will help you control your spending and help you reach your financial goals.

Whether you need to payoff student loans, or grow your emergency fund, setting a budget can lead you to a great financial future!  The beginning may not be so exciting.  It may even feel overwhelming as you take a hard look at your finances.  But take heart once you’ve taken this step and acknowledged the truth about your finances the rest should serve as motivation!

Step 1

Start with identifying your financial goals.  What would you like to accomplish in terms of your financial future?  Go for it, dream, this is where it all starts.  Would you like to  pay off student loans, credit card debt, save for a healthy emergency fund, save for retirement or pay off your mortgage?  What ever your financial goals may be, write them down.  Make sure you are prioritizing your goals in a way which makes financial sense.  Focus on one financial goal at a time.  Now let’s move along to the planning part.

Step 2

In this step you’ll begin with a pen and paper or a spreadsheet like this one my husband created to help us capture our finances.  Whatever works best for you, use it.  List every source of take-home income you receive after tax.  Be thorough and include: side jobs and any additional type of income.

Step 3

Now list all your fixed expenses.  These are your mortgage/rent, gas, light, water, phone, internet, and car (any expense that is an absolute commitment).  Our homeowners association fee is due once a year and our car insurance twice a year, so we simply break the cost of each into what we would be paying monthly.  We save that in a separate bank account until the time arrives to pay it.  Calculate an average for those bills which fluctuate monthly like the water, gas and light.

Moving on to variable expenses.  List your variable expenses.  Your variable expenses are those which can change month to month.  Things such as groceries, toiletries, entertainment, eating out, highway tolls, gifts and holiday expenses because Christmas will come again!  Two additional categories we include into our budget are spending money for each my husband and I and date night money.

Step 4

Once you’ve listed your total take-home income and expenses you’re ready to make things happen.  Next subtract the expenses from your total take-home income.  I know this may sound silly, but you really want to show more income than expense.  If you’re showing more income than expense, great!  Time to start crushing goals!  If not, I suggest revising your variable expenses and make changes where ever you can.  Don’t get discouraged if you need to do without or cut back on some of the fun categories for the time being, remember it’s all about priorities.  Learn to make short term sacrifices for your ultimate long term goals!

Having a budget can take some time to get use to.  Don’t give up!  Once you start setting financial boundaries and making progress you’ll wonder why you didn’t think of putting a budget in place earlier.  Ready to create a budget?

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