How To Create a Budget

Creating a budget may not sound like the most exciting thing in
the world to do, but it is vital in keeping your financial house in
order. Before you begin to create your budget it is important to
realize that in order to be successful you have to provide as much
detailed information as possible. Ultimately, the end result will be
able to show where your money is coming from, how much is there and
where it is all going.

Here's How:

1. Gather every financial statement you can.
   This includes bank statements, investment accounts, recent utility
   bills and any information regarding a source of income or expense. The
   key for this process is to create a monthly average so the more
   information you can dig up the better.

2. Record all of your sources of income.
   If you are self-employed or have any outside sources of income be sure
   to record these as well. If your income is in the form of a regular
   paycheck where taxes are automatically deducted then using the net
   income, or take home pay, amount is fine. Record this total income as a
   monthly amount.

3. Create a list of monthly expenses.
   Write down a list of all the expected expenses you plan on incurring
   over the course of a month. This includes a mortgage payment, car
   payments, auto insurance, groceries, utilities, entertainment, dry
   cleaning, auto insurance, retirement or college savings and essentially
   everything you spend money on.

4. Break expenses into two categories: fixed and variable.
   Fixed expenses are those that stay relatively the same each month and
   are required parts of your way of living. They included expenses such
   as your mortgage or rent, car payments, cable and/or internet service,
   trash pickup, credit card payments and so on. These expenses for the
   most part are essential yet not likely to change in the budget.
   
   
   Variable expenses are the type that will change from month to
   month and include items such as groceries, gasoline, entertainment,
   eating out and gifts to name a few. This category will be important
   when making adjustments.

5. Total your monthly income and monthly expenses.
   If your end result shows more income than expenses you are off to a
   good start. This means you can prioritize this excess to areas of your
   budget such as retirement savings or paying more on credit cards to
   eliminate that debt faster. If you are showing a higher expense column
   than income it means some changes will have to be made.

6. Make adjustments to expenses.
   If you have accurately identified and listed all of your expenses the
   ultimate goal would be to have your income and expense columns to be
   equal. This means all of your income is accounted for and budgeted for
   a specific expense.
   
   
   If you are in a situation where expenses are higher than
   income you should look at your variable expenses to find areas to cut.
   Since these expenses are typically essential it should be easy to shave
   a few dollars in a few areas to bring you closer to your income.

7. Review your budget monthly.
   It is important to review your budget on a regular basis to make sure
   you are staying on track. After the first month take a minute to sit
   down and compare the actual expenses versus what you had created in the
   budget. This will show you where you did well and where you may need to
   improve.