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Creating a Budget

Have you ever felt that end-of-the-month financial pinch? It may surprise you, but when people are feeling tight on funds, they often overspend instead of cutting back. Naturally, we love to indulge in the things that make us feel good. But those good feelings might only last until you open your credit card bill.

If you want to keep your spending under control—and feel good about your finances all month long—it’s essential that you create a budget and stick to it.

Budgets help you:

  • Differentiate between wants and needs
  • See how much money you’re making
  • See how much money you’re spending and where it’s going
  • Make intelligent choices about the money you earn
  • Get and stay out of debt
  • Save for retirement, emergencies, large purchases and other financial goals
  • Enjoy occasional indulgences because you know money has been allocated for such spending

The following steps will help you get started on making a budget.

  • Know Your Income – List all the jobs that pay you a salary or wages. If you receive income from self-employment, list that too. Lastly, list other sources of income, such as:
    • Pension
    • Retirement income
    • Alimony or child support
    • Bonus pay

    If you have more than one pay period in a month, you’ll need to figure out your total monthly pay. For example, if you get paid twice a month, take your paycheck and multiply it by two. Total up all the amounts and this will determine your monthly income.

  • List Your Expenses – Don’t know where all your money goes? Time to find out. First jot down a rough estimate of how much you think you spend on food, housing, transportation and other expenses.

    Then, for a month, keep track of what you really spend to arrive at a solid figure. You can do this yourself using our printable Budget Worksheet or a computer program. But no excuses—a pen and piece of paper will work too.

  • Adjust – Now that you have a better understanding of your spending habits, it’s time for the fine-tuning. If your income is greater than your expenses, you are on the right track. If your expenses exceed your income, it’s time to get to work.

    This is the hardest part of the process because it involves sacrifice and indulging a little bit less. Increasing income overnight is unrealistic for the majority of us, so consider trimming back on expenses in certain areas. Remember that a budget is not set in stone and adjustments will probably need to be made from time to time.

The keys to a successful budget are getting started and sticking with it. Now that the plan is set and your expenses are accounted for, you can start budgeting your money towards meaningful financial goals. But don’t forget to budget for some fun spending too.


Last modified: April 11, 2011 at 3:50 pm