How to Create a Financial Budget
A financial budget is a useful money management tool, which can allow greater financial freedom in the long term by effectively allocating assets and spending on month-to-month basis. One reason many people find themselves in stifling debt is poor financial planning. The purpose of a budget is to avoid spending more than one can afford, to get on a path of financial responsibility.
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Instructions
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Gather all the financial data that you have. To make a budget, you need to know all your utilities, sources of income, debts and assets.
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Calculate how much income you take in each month. Creating a monthly budget is the most effective, since bills and income usually come in by the month. If your income varies by month, come up with an average of how much you normally earn. Be sure to subtract money taken out of your income for taxes.
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Make a list of monthly fixed expenses and subtract them from your total income. Fixed expenses are those which do not change in amount each month--things like rent, cable, insurance and loan payments. It can be useful to calculate what percentage of your take-home pay is allocated toward fixed expenses.
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List all other variable expenses and subtract them from income minus fixed expenses. Variable expenses are those which need to pay to live, yet the amount can change based on what you buy. Things like food, gas and clothing are variable, but necessary expenses. Only after subtracting out all necessary expenses should any income be allocated toward other uses.
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Create a short list of extra things you would like to allocate money toward each month. This should include an allocation toward entertainment, savings and extra money toward paying off debt. If you have credit card debt, it is usually best to allocate most of your extra money toward paying it off. For your entertainment budget, you can divide things into different categories like eating out, seeing movies, buying DVDs, games, etc. If you want to make a large purchase, such as a new TV or taking a trip somewhere down the road, allocate some money for savings toward that purpose. If you have extra money left over, put it into credit card debt or general savings.
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Assess your budget after it is created and shift expenses around as you see fit. You might realize in creating a budget that your cable TV and cell phone bill leave less money for going out to eat each month, or that your posh gym membership means you can't see as many movies. Eliminating or reducing certain expenses can allow you to allocate more money to things you value highly. Of course certain expenses, such as loan payments and rent, cannot be eliminated.
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If you experience a significant change in monthly income or expenses, create a new budget. Moving or getting a new job will almost always require a new budget.
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Tips & Warnings
The creation of a budget, in and of itself, is not enough to stabilize one's finances. Holding true to the budget, and not overspending in any area, is far more difficult than constructing a good budget.
