If you are like most people, the downturn in our economy has forced you to take a closer look at your finances and you have realized that you need to create a budget. Living on a budget is a concept that is often thought of as difficult, tedious and even stingy. However, setting up a usable budget so you can live within your means is probably the smartest financial decision you can make. And it is fairly easy. The key to creating a successful budget is keeping it simple and honest. Sure you can go out and buy some budget software, but these are often way more complex than they need to be and it seems like they always include a whole bunch of categories that you don't need. Here are some guidelines so you can create your own personalized budget.
First, open up a spreadsheet. At the top of Column B, write down the month you are budgeting for. Then in Column A (starting in Row 2), make a list of each person with income in your household. Put the corresponding expected income for each person in Column B. There are several ways to list your income. If you want to monitor how withholdings for taxes, retirement and insurance fit into your budget, put your total income down and you can include all that stuff in your expenses. Or if you feel that you're doing okay in that area and that would make your budget way too complicated, just put down your take-home pay. Also, if your paycheck varies month to month, put down the least amount you would expect to make under normal circumstances. I also like to add a line for any Bonus money that comes in. At the bottom of the list of incomes, calculate the total income for the household.
You know how everyone always says to pay yourself first. Well, we are going to fit that into your budget. Skip a line under your total income and write Savings in Column A and the corresponding amount you want to save in Column B. You can make this as detailed as you want. Some things you may want to include are Retirement, College Savings, Investments and some fun things to save up for like a new car or furniture.
Now it's time for reality. Under your savings you need to list all of your monthly expenses. Start with the regular bills that you can't change very easily- mortgage, rent, utilities. Then go down the list of all your other expenses. My list includes gas, groceries, phone, cable, car insurance, medical, dog care, dining out, hobbies and incidentals. Once again, you can make this as detailed as you want. I break down the expenses I put on my credit card into each of these categories since I pay for most things with my credit card. But if you want to include a limit for your credit card expenses, feel free. Just make sure you don't count any expenses twice. Put down how much you plan on spending in each category in Column B. Be as exact and as honest as you possibly can be for your budget. Look at your last bank and credit card statements to figure out how much you normally spend. Now, put the sum of all your expenses (starting with savings) at the bottom of your list.
Here's what makes the budget process really fun. You want your total expenses to equal your total income. So, on a new line, put Leftovers in Column A and in Column B subtract your total expenses from your total income. This number should be 0. If it's a positive number, GREAT! Just add that amount to your savings line and you are good to go. If the number is in the negatives, you need to do some trimming on your budget. Start with the frivolous stuff that you don't really need. Once you get that magic number to equal 0, congratulations! You have successfully created your own personalized budget! I'm sorry to have to tell you this, but that was the easy part. The really difficult part is staying within your budget. But more on that later. For now, give yourself a pat on the back for creating your own simple budget!
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