To create a budget is definitely not the most entertaining thing to do; however it is an essential thing to do in order to maintain a sane financial house. At first, before starting the procedure, you should be aware that for a successful one, you have to collect as much info in details as possible. Eventually, you will have an overall idea about the source of the money you have, its quantity and how it’s being spent. Follow these steps:
1. Collect all finance-related documents you have, such as bills, bank statements, investment reports or any other information that can tell about your income and expenses. You can apply this by calculating these monthly so you will get more detailed information.
2. In case you own a business or an employee with an outside source, make sure you document all the sources on a monthly basis.
3. Write down a monthly list with all the possible expenses you are willing to spend over the month; you can list the car expenses, goods you buy for home, utilities, activities, cleaning services, insurance, mortgage payment and anything that you spend your money on.
4. List the expenses in 2 categories: fixed expenses and variable expenses. Under fixed expenses, you can list those that do not change every month and are major ones in your daily life, such as rent, car payments, cable service, internet, bank payments… These expenses will not vary in your budget.
Under the variable expenses category, write down the expenses that are more likely to change every month, for example, activities, delivery expenses, gifts, groceries… you will need such information in the adjustment process.
5. Sum up the monthly income and the monthly expenses. In case your income appeared to be higher than the expenses, then you’re on the safe side and you can use the untouched income in other areas of budget, such as eliminating debts of your credit cards, retirement savings… However, when it’s the other way round, then you will have to make some major changes.
6. Adjust the expenses. The main goal of creating list with the income and expenses is to balance both categories, so your account will be targeted for specific expenses. When you figure out that expenses are higher than income, then you should review your variable expenses and try to reduce them. It will be easier to make adjustments on the variables than cutting off expenses form the fixed ones.
7. Evaluate budget on a monthly basis. This action is a crucial one in order to be sure that you are spending money the right way. When you review your budget, make sure you compare what you’re spending and what you have included in the budget. You will know whether you are still on track or you need to make some changes.