Without a budget, it is all too easy not to have any idea how much money you and your family are spending and where that money is going. And without some idea of what you are spending money on, from a mortgage payment to groceries to utilities to day care, you risk running out of money before all your bills are paid. Budgeting is no more and no less than creating a plan so that what you spend and save equals what you make or what you and your spouse or partner make. Let’s look at the steps in the budgeting process and a budget worksheet.
How do I build a budget?
To build a budget, you need to start by gathering information about your income, expenses, and savings. Since many bills are due on a monthly basis, tracking your spending and saving on that basis usually works best.
Step 1: Income (cash inflows)
The best way to get information about your income is to get a copy of your pay stub; if you have other income that you receive regularly, such as income from a side business or rental properties, include this amount also. If that income isn’t regular or predictable, you may want to leave it out of your budget and determine how you want to spend and save it when you receive it.
Step 2: Expenses and savings (cash outflows)
Then, start to pull in information about your expenses. Your checkbook, bank statements or online banking bill pay system is a good place to start. You’ll want to include all your bills, such as mortgage or rent, taxes, property, health and car insurance, utilities, car payment, daycare expenses, credit card and other loan payments, entertainment, phone and cable bills, clothes, haircuts, groceries, and any other expenses you have.
An important habit to build into your budgeting process is to "pay yourself first." Treat creating savings goals as a top priority cash outflow. You are creating a category for ensuring you put some of your income towards savings.
When building your budget, account for any monthly savings programs you have in place. If you automatically transfer a specific dollar amount each month to a savings or investment account, list it as a cash outflow. Obviously, this is a good cash outflow as you are putting money away to help you with future goals.
Step 3: Monitor and revise your budgetMonitoring and revising your budget are important parts of the budgeting process. Once you establish your budget, you will want to compare your actual income and expenses for the month to the amount you budgeted. Ask yourself, "How’d I do?" by answering these questions:
- Was my income what I thought it would be?
- Did I spend more or less than I budgeted?
- Did I save what I said I would save?
- How do I feel about how I spent my money?
- What changes will I make to spending and saving?