Financial security is freedom. Making a budget is simple and is the first step to financial security. You can use computer software to
create your worksheet but it’s not necessary. All you really need is a piece of paper and a pencil. How you decide to create your budget is up to you. The basic idea is the same. Doing a budget worksheet every month will help you see where you can or need to cut cost.
Things you will need:
* Financial Statements
* Financial software (i.e. Quicken), Spreadsheet software (i.e. Excel) OR paper and pencil
* Calculator (if using paper and pencil)
Step 1. You will have two categories for your expenses: FIXED and VARIABLE. Look through your financial statements (bills, credit card statements, checkbooks, receipts, etc.) to see what your list will include.
Step 2. The fixed category is like it sounds – the bills that are relatively the same every month. They are a “fixed” amount. This is also where you would include bills that you pay every 6 months (like car insurance) or every year (like property tax). These expenditures should be included in your monthly plan.
Examples of “Fixed Expenditures” would be: mortgage/rent, insurance, utilities, telephone, cellular phone, memberships (i.e. AAA, Netflix), internet service, cable TV, savings, etc.
Step 3. The Variable category is also like it sounds – the bills “vary” from month to month.
Examples of “Variable Expenditures” would be: groceries, clothing, entertainment, travel, laundry, car repairs, savings, etc.
Step 4. Total up these expenditures.
Step 5. Now figure out your income. This will include your wages, bank interest and any other sources of money you have coming into your household.
Step 6. Subtract your expenses from your income. If you have a negative number, you have some work to do! Remember you CAN NOT SPEND MORE THAN YOU EARN! If you have a positive number then you are on the right track. Congratulations! Look over your expenses. Can you be doing better? Are there places you can cut some costs? The old rule of thumb was to have 6 months worth of expenses in an emergency savings fund. Currently, a financial planner on PBS is saying 8 months. Creating a budget will help
you reach that financial goal!
EXAMPLE OF A BUDGET WORKSHEET:
Telephone $ 20.00
Property tax $165.00 (take your yearly cost and divide by 12)
Car Payment $200.00
Netflix $ 15.00
Savings $ 50.00
Clothing $ 75.00
Donations $ 20.00
EXPENSE TOTAL $1245.00 (this is FIXED and VARIABLE EXPENSES)
Interest $ 100.00
GRAND TOTAL -$ 55.00 (This is INCOME minus EXPENSES)
This person is spending $55.00 more a month then he earns. Hopefully your worksheet will reflect a positive number!