Making A Budget

Why do you need a budget?   l   Listing your expenses   l   Determining your net monthly income
Setting your budget goals   l   Creating categories for your expenses   l   Cutting your expenses
Creating your budget   l   Staying on budget

Why do you need a budget?

A budget is a necessary evil; it can be a hassle and forces people to make sacrifices. However, you need it because it will help you control your spending. And, controlling your spending means making sure that your money is being used the way you want it to be used. Indeed, a budget will help you become smarter with your money and other resources.
Making a budget doesn't have to be a hassle. That is why we have provided a simple, step-by-step guide to help you create your family's budget. We have even provided a few easy-to-use tools to make the task easy and fun for you.

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Step 1: Listing your expenses

In order to create a realistic budget, you have to figure out where your money is going. And to do so, you will have to make a list of your current expenses for a specific period of time (like 1 month, 3 months or 1 year). Begin the process by creating two categories of expenses namely documented expenses and cash expenses.

Documented Expenses

These are expenses you made for which there is evidence in the form of receipt, duplicate check, credit card statement, bank statement, etc. These expenses are easy to list and here is how to begin.

1.	Pick a time period. You can list your expenses for the past one month but the number you get may not be reliable. To get a reliable figure, you need to list your expenses for at least 3 months. By taking the average of your expenses for 3 month, you are likely to get a number that closely resembles your actual expenses each month.

2.	Take out a sheet of paper (81/2 x 11) and make a table with the following headings: Date, expense or purpose, amount, etc.

3.	Using your checkbook and other documents, record all the expenses you have made in the last 3 months.

4.	After listing all the expenses, add them up and divide the total by 3 to get your monthly documented expenses.

Cash Expenses

For many people, cash expenses represent a sizable chunk of their spending each month. Typically, these expenses are harder to budget for because you don't have a figure for them. To get a figure for your cash expenses, you will need to track them for a month or two. This is how.

1.	Create a cash journal for 4 weeks

2.	Draw three columns with headings: Date, expense and amount.

3.	Record every NICKLE you spend.

4.	At the end of 4 weeks, add up the expenses. The total represents your monthly cash expenses.

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Step 2: Determining your net monthly income

To create a realistic budget, you need to know your expenses as well as your income. So, determine how much money you make each month using the following steps.

On a blank sheet of paper, list your net income from:

Job
Businesses
Farm
Bonus pay
Sividends and interest
Public assistance.
Alimony or child support
Pension
Other sources of income

Add up the numbers and the total is your net monthly income. Make sure that each income listed above represents your monthly earning for that category. For example, if you are paid twice a month, your net monthly income would be your take-home pay for the two pay periods. Similarly if you are paid dividends quarterly, your monthly income from dividends is the amount you received divided by 3.

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Step 3: Setting your budget goals

The purpose of setting budget goals is to make changes to your spending habit. Once you know your total monthly income and expenses, your financial picture will be clearer and the type of goal(s) you need to set will be obvious.

For example, if your total monthly expenses exceed your total monthly net income, your top priority will be to cut expenses and live within your means. On the other hand, if your total income exceeds total expenses, you may want to reallocate some of your spending from one area to another.

Here are a few tips you can use as a guide for setting your budget goals.

Set realistic goals you can reach
Write down your goals on a sheet of paper
Clearly state the benefits of your goals.
Set a time limit for achieving your goals.
Use a budget worksheet if necessary.

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Step 4: Creating categories for your expenses

Creating categories for your expenses would help you identity problem areas in your budget where you need to makes changes. Changes you could make to your budget include reducing your expenditure in one category and increasing your expenditure in another. You could even eliminate a category of your expenditure if you consider such category unnecessary.

Here are examples of categories of expenses you could use.

Home

rent/mortgage
property taxes
homeowner's insurance
homeowner's association dues
telephone
gas & electric
water & sewer
cable Internet service
garbage
household supplies
housewares
furniture & appliances
cleaning
yard or pool care
snow removal
maintenance & repairs

Transportation

car payments ,insurance,
road service club
registration
gasoline
maintenance & repairs
parking & tolls
public transit & cabs
parking tickets

Entertainment

music
movies & rentals
concerts, theater & ballet
museums
sporting events
hobbies & lessons
club dues or membership
film development
books & magazines
newspapers
software & games

Health Care

insurance
medications
vitamins
doctors
dentist
eyecare
therapy

Self Care

toiletries & cosmetics
haircuts
massage
health club membership
donations

Education

tuition or loan payments
books & supplies

Food

groceries
breakfast out
lunch out
dinner out
coffee/tea
snacks

Pet Care

grooming
vet
massage
food, toys & supplies/li>

Personal Business

supplies
copying
postage
bank & credit card fees
legal fees
accounting fees

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Step 5: Cutting your expenses

The purpose of this step is to reduce your spending in certain areas of your budget and use the savings to meet your goal in other areas. Let's say that your budget goals are to live within your means and to begin putting away some money for family emergency.

Budgeting helps you find new ways to spend your money and save some of what you earn each month. For suggestions on how to spend less and save more, see money-saving tips.

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Step 6: Creating your budget

After identifying expenses to eliminate or reduce, you are now ready to create your budget to match your goals namely:

Control your spending and
Set up emergency fund for the family

Here is how to create a budget worksheet.

1.	On a sheet of paper, list on the left side the categories into which your expenses fall. Following the last category, enter "total projected monthly expenses." Finally, enter "total monthly net income."

2.	On the same sheet, draw 13 columns. Label the first column "projected expense," and the second column through 13 should bear the months in a year from January to December. Always begin with next month.

3.	In the earlier step (cutting your expenses), you estimated how much you want to spend each month in each category of expenditure. Now, enter the number for each category under the "projected expense" column.

4.	Add up your monthly projected expenses and enter the total in the "total projected monthly expenses" at the bottom of the first column.

5.	Enter your monthly net income in the "total monthly net income" category at the bottom of the first column.

6.	The difference is your projected monthly savings.

7.	At the end of each month, record your total actual expenses for each category in the appropriate column. The difference between your actual expenses and projected expenses shows how well you are meeting your budget goals.

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Step 7: Staying on budget

Meeting budget goals can be difficult for some families. It is possible that you may not meet yours in one or two months. If so, don't be frustrated. Try again and again and again...
To meet your budget, here are three principles to keep in mind.

1.	Make your budget as realistic as possible. Consider your family situation when creating your budget. Don't be too ambitious. You are unlikely to meet your goals if you eliminate essential things your family needs.

2.	Be resolute. Staying on budget requires you to make difficult choices about what you can get and what you can't get.

3.	Be willing to make sacrifices. You may have to forgo some things you consider important.

Here are a few steps to help you stay on budget.

1.	Track your spending. Remember your budget worksheet? Well, the purpose of this worksheet is to help you track your expenses each month. So, get a receipt for all expenses, especially cash items.

2.	Adopt "cash and carry" strategy." If it is possible, use physical cash or bank card to pay for all of your purchases.

3.	Review your budget and make adjustments. Regularly compare your projected expenses for each category with actual expenditure and make any necessary adjustments.

4.	Consider larger savings. If you are having a difficult time meeting your budget goals, you may consider making bigger changes. For example, trading in your car for a cheaper, smaller one. Another example is selling your home and moving into a smaller one.

5.	Set daily spending goals and stick to it. Be frugal; no savings is too small. It really does add up.

You can come up with a million reasons why you need a budget. Creating and staying on budget helps you in many ways. Taking the first step though is critical to charting a new path for your financial future. Don't be afraid of failure. If you fail, try again. Don't give up; it is always too soon to do so.

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