Jan. 8, 2012
How to Create a Budget - Part 2
Earlier today I posted about what types of things should be in a budget, and how to determine if they are a necessity or a want giving my personal budget as an example. This is helpful, because if you want to save money or need to cut back, you'll know where the 'wants' are and can reduce or eliminate those first.
Now, let's work on actually making a budget. In order to create a realistic budget you will need to look back at all of your expenses over the past few months (or track for the upcoming month). This is where you look at your non-fixed items, such as electricity. What is your monthly average? Do you average a greater amount in the summer or is it about the same year-round? A current bill is great for this, since most of them have a bar graph of your history over the past 12 months.
Do you grab a soda from 7-11 everyday? Did you know that if you get a $1.29 soda or coffee on the way to work every day, that's over $25 month? These little purchases needs to be included, because they really adds up.
Once you've figured out how much you spend on average for each item, fill it in. You know your mortgage is $1,000, and let's say you average $120 in electricity. Go through all the bills, including the credit cards, groceries, and other regular incidentals. Write them down so that you can add them all up at the end. This will give you an average of your total monthly expenses.
If you haven't kept track of your expenses the last few months, make a budget of what you think you spend. Then start keeping track of it so that you can create a more realistic budget next month.
Now that you have that budget total, look at your net household income. This is what you have to work with each month. If your expenses are more than your income, then you are living above your means. If this is the case, look at the 'wants' items and see if any can be reduced or eliminated.
If you find that you're over spending, an easy way to get your budget under control, is to look at where you are spending too much money and where you can spend less. For example, if you have cable and are going to keep it, do you really need the movie channels? How often each month do you watch them, really watch the entire movie? If you are using these channels as a time killer, like I was, then they are a want and on the chopping block.
Once you have a budget within your means, an easy way to stay there would be to break down the budget by your paycheck. I was paid biweekly. So each pay check I know how much I have to set aside for bills, and how much I can spend over the next two weeks, like on groceries or going out.
If you are having a hard time making your grocery budget last 2 weeks, break it down to 4 and only spend that much at the store each week. I have a friend that was making rice & beans for her family for 5-6 days in a row before each biweekly paycheck. Once she started breaking her grocery budget down into weekly segments, she only needed to serve rice & beans 1-2 days each week. Since her groceries are on a weekly budget, it was easier to make it last between paychecks.
There are also lot of good monthly budget books at office supply stores. If you want to use one of those to help you, I would suggest getting one that lets you track your spending per day for each item. This will really help show you exactly what you're spending and where you can easily cut costs.