Building a Budget
Building a Budget — Take control of your finances with a spending plan
Gather your data
Start by gathering all of your financial statements, including those for bank and investment accounts. Get out pay stubs and all other information about your income sources. Add up all income for the year and divide by 12 to get a monthly income figure.
Next, you’re ready to list expenses. If you bank online or use accounting software, it’s easy to see how much you spend for almost every item. Otherwise, you’ll have to gather bills for utilities, cars, rent or home mortgage, cable TV, phones and other expenses. Don’t forget retirement plan contributions. Include expenses that come around once or twice a year like insurance premiums and average them into monthly costs. List variable expenses like food, dining out, and gifts, and again, average several months of these costs to get a monthly estimate. Remember: small impulse buys can really add up over time, so include all of your incidental spending. Use our worksheet so it’s easier to track everything.
Building a budget may only take about 30 minutes and you’ll enjoy the benefits for years.
Get your balance
What you’re aiming for is a number in the total expenses column that is less than the number in the total income column. This indicates that you’re earning more than you’re spending. Use any excess to save more for retirement and other goals.
If it turns out you’re spending more than you’re making, it’s time to go back to your expense worksheet and look for ways to cut back. Consider cutting out items you can do without.
Review regularly to stay on track
Check your worksheet regularly to make sure you continue to have a surplus. The whole point of this exercise is to minimize the use of credit cards, stay out of debt and save more. The result will be a sense of confidence that comes from knowing you are in control of your finances.