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Creating a budget is the first step to successful money management. How can you manage your money if you don't know how much you have or what you're spending it on?
A budget has two parts, income and expenses. The object is to keep your expenses at or below your income. Sounds easy, but as we all know, it can get a little tricky sometimes.
List your expenses
OK, get out a sheet of paper. Yes, right now! If you wait until later, you might never get to it. Got the paper? Good. Use the following list as a memory jogger to help you list your expenses. If you are not sure of the amount, go back through your checkbook for the past few weeks or months to get an idea. If you pay cash for items such as fast food, think about how often you spend money on that item and how much it costs each time.
Housing and utilities
- Mortgage payment or rent
- Insurance
- Taxes
- Electric
- Natural gas
- Water
- Garbage pick-up
Transportation
- Car payments
- Insurance
- Gas
- Routine maintenance
- Repairs
- Air travel
- Rental cars
- Public transportation
Communication
- Telephone
- Cellular phone
- Voice mail, etc.
Entertainment
- Cable TV or satellite service
- Internet access
- Dining out
- Bars, clubs, etc.
- Sporting events
- Parties
- Lessons and recitals
- Clubs
Household
- Groceries
- Cleaning supplies
- Laundry
- Dry cleaning
- Home improvement projects
- Towels, linens, etc.
- Clothing
Health and Beauty
- Hair cuts, perms, etc.
- Make-up
- Medical, dental, vision
- Weight loss, diet products
- Nutritional supplements
Other
- Credit card payments
- Other loan payments
- Child care
- Items for baby/elderly (diapers, etc.)
- Allowances for children
- Book clubs, magazines, music, etc.
- Fast food
- Investments
- Vacation
- Spending money
- Donations to church or charity
- Gifts (Christmas, birthdays, weddings, etc.)
- Emergency fund
- Coffee, soda, cigarettes, etc.
Review your list
Now that you’ve made your list, take a minute and try to think of anything I might have missed. Is there anything special you need for work? For school? Do you have a hobby you spend money on? If you buy a new lens for your 35mm camera every year, you’d better put it in your budget.
Add it up
Now that you have your list of expenses, go ahead and add them up. Figure all expenses as a monthly amount.
For example, if your property taxes are due once per year, divide the amount by 12 to get a monthly figure.
Are your monthly expenses lower than your monthly income? If so, you can skip ahead to the sample budget. Otherwise, continue on to the next section. You’re going to need to trim your expenses.
Cutting back
If you’re like most people, you have more "I wants" than you have money for. Deciding what to cut is the hardest part of making up a budget. Start by determining how much you need to trim. To do this, subtract your income from your expenses. If your take-home pay is $2000 per month and your list of expenses came to $2200 per month, you need to trim $200 per month. The figure may seem daunting at first, but if you look hard enough at your expense list, you can usually find a few items that are easy to cut. I can't see your list so I can't tell you what to cut, but here are some ideas.
Suggestions for cutting back
1. Eliminate cable/satellite service or subscription channels.
2. Switch to a free Internet access provider if there is one available in your area.
3. If you smoke, try to cut back.
4. Cut back on soda, coffee and other beverages if possible. Drink water.
5. Take lunches to work instead of eating fast food.
6. Shop around for cheaper home and auto insurance.
7. Use coupons and online services to save money on groceries.
8. Rent videos instead of going to the movies.
9. Turn down the water level on your washing machine and dishwasher if it is adjustable.
10. Turn the lights off.
11. Turn the heat or air conditioning down when you are not home.
12. Don't overheat or overcool when you are home. If you can stand it at 80 degrees in the summer, don't turn the A/C to 67.
13. Find a bank with a no-fee checking account if you don't have one.
14. Find a cheaper long distance company. You should be able to get long distance for about 5 cents per minute.
15. Talk on the phone less. Send e-mail or instant messages as much as you can instead of calling.
16. Cut your hair… …and theirs, yourself.
Write it down
You're almost done! You know how much money you make and you’ve trimmed your expenses to match your income.
Now what? Write it down. Wait, let me say that again in case you missed it - WRITE IT DOWN! If you don't, you probably won't stick to it.
Daily planner method
I used to have a section in my daily planner for my budget. There was one page for each paycheck. At the top of each page, I wrote the date that I would be paid. Below that, I listed everything that needed to come out of that check. To do this, you need to divide your expenses as evenly as possible. If your largest bills are all due at once, move some up and pay them a little early, rather than trying to fit them all into the same pay period.
Spreadsheet method
The planner method makes it easy to see which bills come out of which check. There’s a drawback, however. Since your budget is on paper, you have to re-write the whole thing every time something changes. I now use a spreadsheet to track my budget instead.
You can set up your spreadsheet any way that works for you. My spreadsheet has five columns, labeled “plan,” “actual,” “description,” “amount,” and “balance.”
The plan date is the date I expect a payment or expense to occur. I fill in the actual date when the check is received or the bill paid. That helps me see where I am.
I keep my expected income and expenses filled in at least six months in advance. That gives me time to rearrange things if it looks like I might come up short when the car insurance comes due.
The balance column contains a formula that automatically calculates the amount of money I should have left after any transaction. Every time I update my budget, I check to make sure this amount matches the balance in my checking account.
Sample budget
Here is a sample budget to use as a guide when designing your own budget. This sample is based on a bi-monthly pay period with a take home income of $2000 per month.
If you are paid weekly, divide your expenses into four pay periods instead. During months when there is an “extra” paycheck, I usually try to put more money in savings.
First pay period
Car payment $ 292
Car insurance $ 139
Day care $ 200
Electric $ 50
Natural gas $ 60
Phone $ 45
Personal debt $ 40
Cable TV $ 34
Groceries, etc. $ 80
Gasoline $ 40
Spending money $ 20
Second pay period
Lot rent $ 332
Investments $ 200
Day care $ 200
Credit card $ 80
Groceries, etc. $ 80
Gasoline $ 40
Water $ 20
Gifts $ 10
Car maintenance $ 10
Spending money $ 20
Kids' allowances $ 8
You’re all done!
I hope you were able to put together a budget you can live with. One more quick tip: When trimming the extras, leave at least one thing you do just for fun. Otherwise you may end up feeling deprived and toss out the entire budget.
This article was excerpted from The Single Mom's Survival Guide by Bethanny Davis. For more information, please visit her web site at http://www.booksnbids.com/singlemom.html.
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