Budgeting 101

Make a plan to manage your money


Developing a budget can give you control over the feeling of chaos you may have about your finances. Staying out of debt always involves difficult choices; you can’t have it all. Creating a budget allows you to make informed, purposeful decisions as to how to allocate your money in the best possible way to reach your goals.

How to Create a Budget by Hand

Creating a budget by hand is pretty simple. Maintaining it can be difficult because of the discipline it requires. Follow these easy steps to success:

1) Assess your monthly income. Figure out exactly how much you’re bringing in each month. You need to know how much money you have to work with before you start budgeting it out.

2) List your fixed expenses. Fixed expenses are those that stay roughly the same each month. They include things like rent, car insurance, car payments, health insurance, phone bill and student loan payments.

3) Subtract your total fixed expenses from your total monthly income. The amount that’s left over is what you can work with for your variable expenses. If your fixed expenses are more than your total monthly income, you’re in trouble, as we haven’t even gotten to your variable expenses yet. If this is your situation, it’s time to cut the cable, downgrade your mobile phone plan, get a roommate to reduce rent costs, etc.

4) Set a spending goal for variable expenses. Now that you know how much money you have to work with, you can start budgeting for your variable expenses. These are the expenses that fluctuate from month-to-month. This type of spending includes items like groceries, utilities, gasoline, eating out and entertainment.

5) Subtract your total expenses (fixed and variable) from your monthly income. The goal is for your total expense amount to be less than your income. If it’s not, you’ll need to tweak your expenses so that they are. This may mean cutting back on things like going out to eat.

6) Keep track of spending. After you’ve created the budget for the month, keep track of every single penny you spend to ensure that you stay within your budget. Keeping track of your spending will also come in handy when you make next month’s budget.

7) Review your budget every month. Each month, go over last month’s budget to see how you did. You’ll be able to see where you did well and where you can improve. After you review, repeat the whole process and make next month’s budget.