1. Establish your
budget
Before creating a budget,
review your financial history. Using bank and credit card statements identify
both how much income you take in, and how much you typically spend on expenses.
Compile the financial information into two separate categories: expected income
and expected expenses. Expected income should include
wages, self-employment income, investment income and other sources of income.
Next, list expected expenses such as mortgage or rent, utilities, and cable and
cellphone costs. Lastly, subtract expected
expenses from expected income to determine the amount you have available after
expenses are paid. The available amount should be put away for rainy days, used
to pay down debt or applied to other financial goals.
2. Separate the
necessities from the wants
Further separate your expected
expenses into two additional categories: discretionary expenses and non discretionary expenses. Discretionary expenses are simply "wants,"
such as entertainment, dining out or gym memberships. Non discretionary expenses
are necessities, such as rent, utilities and groceries.
3. Track your
expenses
Periodically update your
budget to list the actual expenses for each category. Compare budgeted amounts
with actual spending. If you are tech-savvy, use Smartphone
budgeting applications to help you keep track of expenses. Or, if you enjoy
recording the old-fashioned way, keep a notepad to document your expenses.
4. Review and
adjust frequently
Prepare a budget at the
beginning of each month or every pay cycle. This gives you an opportunity to
review your prior month's budget and identify areas where you need to control
spending. Make any adjustments necessary to help you reach financial goals,
such as saving or reducing debt.
5. Budget for
life's pleasures
Consider planning for certain
indulgences, such as date nights, or a new dress or pair of shoes. Planning
ahead of time will help you understand what you can afford, and also serves as
a reminder to treat yourself every now and then.
