How to Set up a Budget

Two things come to mind when I'm trying to make ends meet. Income and expense. Does my income exceed my expenses or do my expenses exceed my income? Whether we need to stretch our money or whether we have no problem paying our bills and have money left over at the end of the month, we all would like to be able to save more money.

Setting up a realistic budget can be a very effective tool in helping to save money. I began by listing our income then listing our expenses. I found that I really had no idea where our money was going, except for the fixed expenses such as our monthly bills. The rest was a washout. So I decided to keep track of ALL the money we spend for a month. I noted what we spent each day and found that in order to save we were going to have to cut down on our spending

After keeping track of each penny we spent for a whole month I tallied it up. I organized my financial "journal" by breaking it down into different categories. These are the categories that I had. They are not set in stone; you can set yours up the way that fits your needs best.

Monthly Expenses:

1.) Food, not just groceries that I buy each week, but also the emergency shopping trips.

2.) Entertainment - which includes eating out, movies, sporting events etc. AND the stops that we make on the way to work to buy a drink, a candy bar or a sandwich from the convenience store or the machine in the dining room at work. It also includes babysitter payments when we go out. (you may want to put some of these expenses into the miscellaneous or grocery category)

3.) Gas, oil for the car, and vehicle maintenance. Anything that goes into upkeep of the car.

4.) Money used expicitly for children- Day care, school lunches, allowances, band uniforms, etc. and money spent on college expenses.

5.) Medical expenses- Doctor, dentist, and eye doctor bills and prescriptions.

6.) Gifts- everything from birthday cards and birthday gifts, anniversary gifts, Valentines Day, Mother's Day, Father's Day, Easter and Easter gifts.

7.) Miscellaneous expenses- Miscellaneous expenses are overlooked when setting up a budget although we do spend more than we think on these extra expenditures. They include magazine subscriptions, postage,laundry, buying an occasional newspaper unless it is included in food shopping and the money we spend on Avon, Mary Kay, Tupperware, etc. You can toss in whatever you want. This isn't set in stone.

8.) Shopping- Clothing and household purchases, computer games, DVDS, lawn and garden supplies, etc should also be included in our budget.

9.) Christmas shopping- This is a once a year expense for many people so you may want to put this money into a Christmas club or set aside a savings account category for it. If not you can estimate how you spend and divide by the number of months in a year and make an allowance in your budget for it.

10.) The money we spend on once a year expenses such as vehicle registrations, inspections, etc. have to be tallied up and divided by 12 also. This has to be an estimation because we don't really know the exact cost. If we do it this way we allow ourselves a certain amount of money to spend on this expense.

11.) Pet care- Vet bills, licenses, front line, etc. can all go into one category. How do we figure this as a monthly expense? By estimating what it costs and dividing by 12.

12.) Fixed expenses: Mortgage, taxes, insurances, credit cards, utilities and student loans, and any other loans or bills that we pay each month. These are the easy ones; we pretty much know what we spend on these expenses each month.

When we've done this for one month it's time to add up each category so that we know how much we actually spend. Then comes the fun part. In order to integrate a savings plan into our budget there must be money left over at the end of each month. After adding up each category, add everything together and subtract the total from your "take home" income and see what's left over. This can be your savings if there a balance. If there's not anything left, it's time to start cutting back on spending. By listing how much we are spending we become more aware of what we are spending, thereby enabling us to cut back!

Go back to your individual totals, decide how much money you must allow yourselves for each category; you may be overspending in some categories, so you'll have to make some adjustments and then see how your financial situation looks. Be realistic though otherwise you'll overspend anyway, but if you can stay within the budgeted amount you will have money left at the end of each month!

Resolution:

When I was working my husband and I spent more money than we needed to. I have a lot of clothes (and shoes) in my closet that I bought and hardly ever wore. That's good now that I'm not working because I am wearing them instead of buying more. The point I am trying to make is that we buy things we don't need!

I hope this looks like something you can put into practice. If your financial situation looks pretty bleak you may want to think of other ways to bring in more income. If not, you're apt to use credit cards to buy what you need (or want). I hope that I'm not causing you to stress out over money but once you get a look at the whole picture and start taking action, even if it's tiny little steps, then at least you're doing something!

To print a free budget worksheet go to this website:

http://financialplan.about.com/cs/budgeting/l/blbudget.htm