Create a Budget
Creating a budget may take time, but the benefits it provides to improving your finances make it well worth it. It may not be as complicated as you think either. To help make creating an accurate monthly budget as easy as possible, Consolidated Credit Solutions offers you any easy 5-step method to making a solid monthly budget. With the right budget in place, you can secure your financial future and ensure you avoid financial hardship no matter what lies ahead.
If you need assistance creating your monthly budget or you come to realize as your create a budget that you have too much debt for your monthly finances to handle, call us at 1-800-990-9838. A certified credit counselor can assess your budget and make recommendations, as well as give you strategies to pay off debt.
Step 1: INCOME
The first step you need to take to create a budget is to get an accurate picture of what money you have coming in. Total your monthly income, including the take-home (net) pay from your job, plus any additional money you may have coming in from things like alimony or child support, monthly assistance or settlement payments. Make sure to also note when each payment comes in, as this will be important later to ensure you can make all your monthly payments on time.
Step 2: OBLIGATIONS
Whether it’s the bill for your mortgage, a monthly payment on a credit card, or the money you pay to make sure your lights stay on, monthly bills and obligations are expenses that need to be paid in-full and on time. While you can cut back other expenses if you don’t have enough money available, you can’t cut your credit card payment without incurring steep penalties—which, in turn, cost you even more money.
Total up all of your monthly bill payments and obligations. This includes housing payments for your rent or mortgage, car payments, credit card payments, utilities, insurance, taxes, and personal or student loan payments. As with your income, take note of when each of your bills is due so you can ensure they match up with when you receive your income.
Step 3: BUDGETED EXPENSES
Beyond your monthly obligations comes the money you spend each month on expenses such as food, gas, clothing, and entertainment. Monthly expenses are generally broken into 2 groups—flexible expenses and discretionary expenses. Flexible expenses refer to anything that’s a necessity in your monthly expenses, such as money for food and gas. Discretionary expenses are things you spend money on that aren’t really necessities, such as trips to the nail salon or your monthly gym membership.
Rather than simply estimating how much money you put towards each expense, you want to look at past months to see how much you actually spent in order to set an accurate limit. Since a single month might be a fluke how much you spend, in general you want to look back three months so you get a good average to set a realistic spending limit.
Step 4: Arrange a budget calendar
Now that you have everything tallied, it’s time to make sure you have enough money at any given time to cover your income and expenses. First subtract your total bill payments and total expenses from your income to make sure you have enough money each month. If not, you will need to make adjustments on your expenses to find more money in your budget.
In addition to making sure you have enough money in the month overall, you need to take note of when your bill payments fall on a calendar in relation to when you receive your income. This way, you can ensure you always have the funds available to cover bills at any given time. Although it can be time consuming, creating a budget calendar will help keep you on track. If you want to save time, you can find an online personal financial management program to help you track everything so you’re not wasting time writing on a wall calendar every month.
Step 5: Decide what to save
Once you make sure that you have your basic bills and expenses paid it is time to look at what is leftover to see what you can put towards savings. In general, you want to save about 15% of your take-home income—or at least as much as possible if you’re on a tight budget. Decide where you want to put your savings to make sure you don’t spend that money on impulse buys. You can build up your savings account, contribute to a retirement account or college fund, or even invest the money if you’re in a good place with your finances. You may even want to include contributions to savings on your budget calendar to ensure you set the money aside.