There are three main components to a budget: Income - Expenses = Surplus (Deficit). This formula can be found on a company balance sheet so it is not a stretch to consider yourself a CEO who is running your household budget. It is up to you whether your household runs profitably or not. The first step in creating your budget is to look at your income. If you are a salaried employee this is a straightforward process, just refer to your last paystub. If your income varies, calculate your average monthly income using a period of three to six months. Next, list out your fixed expenses. Your fixed expense list will include charges that occur each month for the same amount (e.g. rent, car payment, cell phone bill, etc.). Finally, list your variable expenses. This list will include charges that occur each month for varying amounts (e.g. utilities, groceries, entertainment, etc.). If you do not have an exact idea of variable expenses, use your most recent known charges by referencing invoices and receipts from the previous month to estimate these costs. Completing the steps above means you have created your budget! Once you have created your budget, you will need to monitor it. There are several tools that will aid you in this process. The main tools you will need are internet access, your bank login information, and a personal budgeting website. There are a variety of personal budgeting websites (search free budget websites) that link to your existing bank accounts and categorize your transactions. This saves you time trying to remember where you spent money and helps identify holes you didn’t realize existed (those $5 coffees and $10 lunches add up). You still need to keep an eye on your transactions but eventually (most of) these websites will learn your trends and begin to auto-categorize entries for you. Once you get in the habit of regularly reviewing your transactions, it will seem second-nature to you. Now that you are monitoring and tracking your spending, it is time begin evaluating your budget. Are you spending more than you make? Are you only making minimum credit card payments? Do you have a surplus that can be added to paying down debt or creating an emergency fund? Creating your initial budget is an important first step in controlling your finances. Evaluating and modifying behavior will then open up planning options, from paying off a credit card to preparing for special occasions or putting money aside for a future vacation. Do not put your head in the sand - the earlier you take steps to create and monitor your budget, the better.
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