Create your personal budget with these six tips
- Gather all of your financial documents
Gather all of your financial statements before you begin, including:
Statements of account
Accounts for investments
W-2s and paystubs 1099s from recent electric bills
Bills from credit cards
Receipts from the previous three months are available.
Statements for a mortgage or a car loan
You want to be able to see all of your revenue and expense records. Creating a monthly average is one of the most important aspects of the budgeting process. The more data you can get, the better.
- Determine Your Earnings
What kind of monthly revenue can you expect? Using the net income (or take-home pay) figure is OK if your income is in the form of a regular paycheck with taxes deducted automatically. Include any outside sources of income, such as child support or Social Security, if you are self-employed. Make a monthly total of your total revenue.
- Make a monthly expense list.
Make a list of all the expenses you intend to incur over the course of a month. This list could include the following items:
Rent or mortgage payments
Payments for automobiles
Insurance
Groceries
Utilities
Personal care and entertainment
Child care when eating out
Costs of transportation
Student loans for travel
Savings
- Calculate Fixed and Variable Costs
Fixed expenses are those that must be paid on a regular basis and for which you pay the same amount each time. Include payments for a home or rent, a car, a fixed-fee internet connection, trash pickup, and regular child care. Include any important additional spending that tends to stay the same from month to month if you pay a standard credit card payment.
Include savings and debt repayment as fixed expenses if you plan to save a set amount or pay off a set amount of debt each month.
Variable expenses are those that vary from month to month, for example:
Groceries
Gasoline
Entertainment
Gifts for Eating Out
Beginning with your fixed expenses, assign a spending value to each category. Then figure out how much you’ll need to spend on variable expenses each month.
If you’re not sure how much you spend in each category, look over your credit card or bank statements from the last two or three months to get an idea.
- Add up your monthly earnings and expenses.
You’re on the right track if your revenue exceeds your costs. This extra cash allows you to allocate monies to other areas of your budget, such as retirement savings or debt repayment.
TIPS: Consider using the “50-30-20” budgeting method if your income exceeds your expenses. In a 50-30-20 budget, “needs,” or essential expenses, should account for half of your budget, “wants” should account for another 30%, and savings and debt repayment should account for the remaining 20%.
If your expenses are more than your income, that means you are overspending and need to make some changes.
- Make Expense Adjustments
Find areas in your variable expenses where you can cut if your expenses are larger than your income. Look for ways to cut costs, such as dining out less, or eliminate a category, such as canceling your gym membership.
