Creating Your Budget

What exactly is a budget? Simply put a budget is way of tracking and controlling the expenditure of money.

How do I create a budget? You will need some time, paper and pencil, an excel sheet, or a budgeting program that you’ve purchased.

Why should I create a budget? To help reduce the amount of extra or unnecessary purchases. To assist you in saving money for an emergency fund or some other goal.

When should I create a budget? Now!

Most people do not have a good grasp on their finances. They may be aware of how much money is coming in, but they are seldom aware of how much money is going out. Most people are simply not getting ahead. When you think about it we are all taught what to do to make money, but there is little focus on how to manage money.

So what’s involved? What do you need to get a real sense of your present financial situation?

When creating a budget there are several factors that you will want to include these are represented through income and expenses or assets and liabilities. On the income side you will want to consider the following:

Income/Assets

• Income, how much money is coming in. What are the sources employment, investment, pension, etc.
• Does any of the income fluctuate from month to month?
• Are you using before or after tax numbers for income?
• Do you receive child support/alimony?

Expenses/Liabilities

• This is where you track everything that goes out. You may want to carry a notepad to jot down items that you spend money on that you wouldn’t normally remember.
• Common items in this category are: mortgage/rent, utilities, food, insurance, travel, taxes, debt payments.
• If you make support payments of some sort don’t forget to include them.
• Don’t forget to include your morning coffee. You’ll be amazed at how much it adds up to.

Once this exercise has been completed subtract the total of your expenses from your income. If the number is positive you’re doing ok. You are spending less than you earn. If the number is negative you will have to find some area’s to tighten up.

Now don’t think because you’ve completed this budgeting exercise that you are done. You want to track this data on a month to month basis to ensure that you are aware of unplanned expenses and how they will effect your bottom line.

Budgeting Tools

You can create your budget with as little as a pen and paper. However,  you will probably find it easier to use a spreadsheet. A good place to start your search for a good budget sheet is the templates found with excel itself. Remember to be diligent with your tracking, in order to be accurate you need to be honest with yourself and track everything.

Creating and maintaining a budget is a key component to obtaining a solid financial footing.