Learning how to create an effective budget is quite beneficial in managing your money. Your personalized budget will allow you to keep your personal and family finances on track, from limiting your expenses (debt) and assisting you in growing your savings (assets). There are many budgeting tools and budget planner how-to's available. You can get started immediately with the following easy to implement seven-step process.
- Begin by gathering all personal and family financial statements from banks, credit cards, investments, recurring monthly bills and even any receipts that have been saved from purchases. With this information, a baseline or average can be set for what has been spent each month. This background data is key, and while it's low-tech, it's better than any forecasting that budget tools can do.
- Now create a list of all monthly income. This could be as easy as the two monthly paychecks a single job provides, or it could include multiple jobs, additional outside income, part-time jobs and so forth. Create a total for monthly income.
- Create a list of every monthly expense that the household deals with. This includes rent or mortgage payments, car loans, all forms of insurance, utilities, groceries and food, and anything else, from school supplies to clothing to gas and so forth. Also include savings plans as an expense here. Use the statements gathered in step one for assistance if needed.
- Separate expenses into fixed and variable expenses for the household budget planner. Fixed expenses are the same level, or roughly the same, each month, and are for necessities. These include the mortgage or rent, loan or credit card payments, utilities, and so forth. Variable expenses can be controlled more with budget tools and planning, and will include money spent on dining out and entertainment, for example.
- Total your monthly income and monthly expenses. Is income already higher than total expenses? That's a good place to start with; but in many cases, monthly expense levels will already be more than income. Some changes will need to be made, but you need to start with these totals.
- Adjustments can now be made to spending, and families can plan ahead. If expenses are exceeding income, those variable expenses need to be immediately cut and managed better. If income is higher, then a family should maintain that level while prioritizing the allocation of money to pay down debts quicker, or increased contributions to saving.
- No budgeting tools or planners are ever final. Continue reviewing end of month information on an ongoing basis. Keep track of what is being spent, what is being adjusted, and what is or isn't working. Then, change as necessary. Don't expect your initial budget to be perfect right out of the gate.