After you've kept track of your expenses and income for a couple of months, you're ready to create a budget. Your twin goals in making a budget are to control your impulses to overspend and to help you start saving money. Follow these steps:- On a blank piece of paper, write down categories into which your expenses fall. (See the chart below for suggested categories.) Also, total up your two months' (or estimated seasonal, annual, semi-annual or quarterly) expenses for the categories you create.
- Starting on a second piece of paper, list your categories of expenses down the left side of the page. Use as many sheets as you need to list all categories. These are your budget sheets.
- On the sheets containing your list of categories, make 13 columns. Label the first one "projected" and the remaining 12 with the months of the year. Unless today is the first of the month, start with next month.
- Using your total actual expenses for the two months you tracked and your estimated seasonal, annual, semi-annual or quarterly expenses, project your monthly expenses for the categories you've listed. To find your projected monthly expenses, divide your actual two months' expenses by two, divide your total seasonal or annual expenses by 12, divide your semi-annual expenses by six and divide your quarterly expenses by four. After you've divided up your seasonal or annual expenses, you might want to include only the major expenses--such as quarterly loan payments or tax bills--in your monthly budget projections. Just make a note of when smaller expenses, such as magazine subscriptions, are due so you can adjust your budget for that month. These temporary adjustments make more sense than trying to save $1.23 each month so you can pay for your magazine subscription once a year.
- Enter your projected monthly expenses into the "projected" column of your budget sheets.
- Add up all projected monthly expenses and enter the total into a "Total Expenses" category at the bottom of the projected column.
- Enter your projected monthly income below your total projected expenses.
- Figure out the difference.
If your expenses exceed your income, you will have to cut expenses or increase your income. One way to do this is to make more money--but let's assume that you are not likely to get a substantial raise, find a new (higher-paying) job, take on a second job or make significant money by selling assets. This means you must decrease your expenses without depriving yourself of items or services you truly need. Review your expenses with any eye toward reducing. Rather than looking to cut out categories completely, look for categories you can comfortably reduce slightly. For example, let's say you need to cut $175 from your budget. You had also planned on spending $75 a month to eat out dinner, but are willing to decrease that to $25, thereby saving $50. Keep looking for categories in which you can make similar, small adjustments.
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