What Every Woman Should Know About Personal Finance: How To Create A Budget
By The Jenny Pincher on May 16, 2011
BlogHer Original Post
Maybe you've experimented with developing a budget but failed. Or else you have just never really considered viewing your spending habits before. It doesn't matter what your life-predicament is right now, making a household budget may appear intimidating. However, a straightforward and easy-to-follow budget is actually simple to create!
If the whole thought of building a budget seems complicated for you, take it one step at a time. Don’t try and complete all the steps in one particular sitting. Instead, set aside one hour for each activity and adhere to this step-by-step guide to learn the secret to generate a simple spending budget.
Start by getting your information together. Pull together your current files, including: paycheck stubs, checkbook, bank statements, credit card statements, living expenses, and any receipts you have. In case you haven’t taken these items out of their envelopes, now's the time to accomplish this! Get anything you have together in one place. Don’t concern yourself with sorting it now or making any sense of it. Just get get it together so you can move on to the next step.
After you have gathered all your paperwork, the next step is to find out what’s coming in each month in the form on income. Using a piece of paper, list your earnings. This includes income from job, tips, house-sitting, babysitting, a part-time job, stock dividends, interest, etc. in a typical month. List the numbers in after taxes or any other deductions. Should you have infrequent income (if you don’t receive a regular paycheck), take your very best guess at what you earn in a normal month. Always figure to the low end in case you have unpredictable income (such as income from a commission-based job). Overestimating your earnings won’t help your budget in any respect. It will only hurt you down the road!
After you find out what you are bringing in each month, the next step is to find out what’s going out in the form of expenses. This list will likely be a lot longer when compared to the previous one, unfortunately! Utilizing your paycheck stubs, bills, bank statements, and charge card statements, list your expenditures for your typical month in two columns: Set Expenses and Discretionary Expenses. Your set expenses normally include: rent or mortgage, property taxes, insurance policy, vehicle payment, utility bills, charge card payments, and financial savings (YES! You need to include savings as a set payment each month to yourself). Your discretionary costs normally can include: groceries, gasoline, dining out, apparel, hair care, memberships, and entertainment. Now you will start to see where the funds are going each month.
What’s the gap between income and expenses? Compare your earnings to your monthly expenses. Do you think you're spending more money than you are making on a monthly basis? Are your charge card payments a significant portion of your set expenses? Are you experiencing “secret” expenditures in your discretionary costs side on the list? If that's so, start getting into a habit of documenting your spending. It's likely you’ll find you’re wasting away $5 or $10 on lunch or other items you don’t even remember purchasing. You may not have remembered to list this kind of stuff in the beginning, but once you start documenting your expenses, you will see how this starts to add up. If you’re out of balance (you’re spending much more than you’re making), you could have two choices: reduce expenses or make more. Keep re-thinking your spending until you have a workable budget -- one where the “money in” side is AT LEAST comparable to the “money out” side and you are repaying your debt.
The final step in creating a budget is to keep to the plan! This task is usually the hardest. It’s simple to write down a budget, but it’s much tougher to say no if your friends are venturing out for margaritas after work on Friday and you’ve previously spent your fun money for that week. Remind yourself that budgets are similar to diets: If you ever splurge in one area, you'll want to replace it somewhere else, or you’ll have to suffer the consequences. Once you know where your finances are leaking, you will be able to turn off the faucet!
If you are serious about having a budget that sets you on the road to financial comfort, there are various good finance management and budget sources designed to use.