How to Start a Budget
1. Determine Your Income
You need to know how much money you will have each month to meet your expenses.
• Approximate percentage of your income you should be budgeting for the following expenses:
o Housing: 36%
o Food: 12%
o Auto: 12%
o Entertainment / Recreation: 6%
o Auto Insurance: 5%
o Debt (i.e. credit cards): 5%
o Clothing: 5%
o Savings (if possible, for emergencies): 5%
o Child care: 5%
o Miscellaneous: 5%
o Medical / Dental: 4%
2. Determine Your Fixed Expenses
Your fixed expenses are items that usually do not change from month to month. These are items such as rent, a car payment, car insurance and your electric bill.
3. Determine Your Variable Expenses
After you have listed your fixed expenses you will want to determine the amount that you spend on variable expenses. Variable expenses are expenses that the amount can change month to month such as how much you spend on groceries, eating out, clothing and entertainment. These are also considered variable because you can cut back on how much you spend on these categories if you need to. You can determine what you spend by going back through your bank transactions and bills for the last few months and see what you normally spend in a month.
4. Compare Your Expenses to Your Income
Ideally you should create a budget where your outgoing expenses match your income. If you assign every dollar a specific place this is called a zero-dollar budget. If your amounts do not match you will need to adjust accordingly. You may need to scale back on your variable expenses. If you have extra money at the end of the month, reward yourself by putting that money directly into savings. If you have cut back significantly on your variable expenses and still cannot meet your fixed expenses, you will need to find ways to change your fixed expenses.
5. Track Your Expenses
After you have set up your budget you need to track your expenses in each category. You should have an estimate of what you have in each category. This will help to prevent you from overspending. If you sit down for a few minutes each day or once a week, you will find that you spend less time than you would if you put it all off until the end of the month.
6. Adjust as Needed
You can make adjustments easily throughout the month. For instance, you may have an emergency car repair. You can move money from your clothing category to help cover the cost of the repair.
7. Evaluate Your Budget
After you have followed your budget for a month you may find that you can cut back in a few areas, while you need more money in others. You should keep tweaking your budget until it works for you. You can evaluate at the end of every month and make changes according to the expenses in the upcoming month as well.
Download the budget sample sheet by clicking on the image below.
