Creating a Budget

 

 

We have all heard things like: “It’s important to stay within your budget.”  But what IS a budget?  How do you create one?

A budget is simply a list.  But it is a very important list.  This list shows you where your money comes from and where it goes.  Having one allows you to figure out what you can and cannot afford.

Here are some steps to get you started creating your budget:

 

1. Pull out all of your bills.  Yes, ALL of them.  Even the nasty ones you wish would just disappear.  It is important to know exactly what money you need to pay out each month.
2. Make a short list of items that you pay for each month that are not necessarily billed to you.  These can be things like groceries, gas, that latte on the way to work.
3. Now make a list.  On this list you will have the name of the company/person you need to pay, the minimum amount you must pay them each month.  Add to that list the items that you have in Step 2 and estimate the amount you pay for those items each month (ie. Groceries $600).  You can also use bank statements from the past year to find out how much you really spent on those items.  I like to take a minimum of 3 months of bank statements, add up the amounts spent on groceries, gas, etc. and then divide by 3 to determine what amount to put on the budget list.
4. Add up the minimum amounts and estimated amounts that you have to pay out to get the total amount of money you need to pay all of your expenses for the month.
5. Now list what money you have coming in.  If you have a regular paycheck you can use that amount or go back to those bank statements and add up all that was deposited over 3 months and then divide by 3.  This is the amount that you have to spend.

 

Example:

 

Expenses (Step 4)                                                                          Income (Step 5)

Mortgage            $ 3000                                                               Your Net Salary                               $3125

Insurance            $   300                                                               Your Spouse’s Net Salary               $3125

Car Loan              $   500                                                                                                                           ======

Utilities                $   150                                                                                                                           $6250

Cell Phone           $   200

Childcare             $   400

Groceries             $   600

Gas                       $   300

Clothing               $   100

Dining Out           $   160

======

$5710

This example may not look like your list, but it should give you an idea of what you are looking for.  Hopefully, the number that you have in Step 5 is larger than the one you have in Step 4.  If it is, you are in good shape.  If it isn’t then you will need to look at the list in Step 4 and see where you can cut.

 

This is just a place to start.  You can break your list down into weekly amounts or expand it to quarterly or annual amounts.  How detailed your list becomes is up to you.

Brought to you by Wendy Conte

Owner of Wendy Conte, CB ~ “We Do Books So You Can Do Business.”

(661) 993-9313  ~ wendy@bookkeepingscv.com

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