How to Make a Budget

Learning how to make a budget can be one of the most important financial decisions anyone ever makes. It can be the one thing that saves many people from financial ruin simply because it allows them to take back control of their money. The goal of any budget is to ensure that you and your family have the necessary money to cover life’s necessities. Once those are covered any left over money can be used for any number of things, including fun and entertainment. The other thing to remember is that a monthly budget is like a living thing, with changing income, expenses and other things affecting it each month.

A budget is nothing more than some simple accounting that even kids can do. The ultimate goal of any budget is to have more money coming in then is getting paid out in bills each month. This is just common sense, but unfortunately many people have a hard time making this happen because they have no idea where their money is going. The pay check gets deposited and before they know it all the money is gone until next pay day.

The best way to get started making a budget is to simply write down all your pertinent financial information on a piece of paper. There are free budget sheets that can be found on the internet that are useful in helping you get a good start on the budgeting process. You can also use a spreadsheet or budget software, but it is easiest to just start by writing it down with pencil and paper.

Determining your income is the first step in how to make your budget. If your job is your only source of income, look at your paycheck. Your income is the actual amount of the check, not the biggest number shown on the check. The biggest amount on the check is your gross income, which means no taxes have been deducted yet. Your net income, which you will use in making your budget, is the gross income minus all taxes and other payroll deductions. If you have other income sources such as a second job, child support, or alimony, these count as income too. Add all these income sources together.

The next step in how to make your budget is determining your expenses. This is harder than it sounds. The amount surprises many people. Make a list of every bill and expense you pay on a regular basis. These expenses include rent, mortgage, utilities, car insurance, home insurance, groceries, gasoline, parking fees, and even pet expenses. Use your checkbook register to help you remember the bills you pay. Some of these expenses change monthly, such as utility bills and credit card payments. Use an average or best guess for these. Add all these expenses together.

Once you have your income and expenses added up all you have to do is compare the two amounts. Your budget is balanced if the income column is greater than the expense column. If the expenses are greater than the income then you can use your written budget to start eliminating and cutting expenses to try and balance you incoming and outgoing cash flows.

Once you know how to make a budget it is important to do it every month. In fact it may take two to three months before your budgeting skills really begin to click. Just be patient with the process because in the end it will help improve your overall financial situation.

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