How to Compose a Budget
Money is a finite resource. Ensuring enough money is available every month to cover expenses and accomplish financial goals requires planning ahead. Setting financial priorities and then allocating money into those priorities is how a budget is composed. With a well planned budget, long-term financial goals become reality. Keeping track of spending and not going over budget is required for any budget to be successful.
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Instructions
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Setting Priorities
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Write down categories of all monthly expenditures. For example, transportation is a category; gasoline is an expense in that transportation category.
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Rank all categories in order, highest priority to least. Decide which is more important: the entertainment category or the housing category. Prioritizing is important. In the event that there are not enough funds available for a budget, the lowest priority categories get no funding.
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Decide how spending will be tracked. Budgeting is useless unless a consistent method for tracking where the money goes and how much is spent is implemented. Tracking spending should be as simple as possible. If there are going to be two people paying the bills and handling money, discuss a solution that will work for both of you. Keeping a ledger on a desk and writing down an expense when it is paid is a simple way to keep track of spending.
Allocating Funds
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Allocate a percentage of your monthly income to the budget categories beginning with the highest priority. Using a percentage will allow you to monitor the budget on a performance level instead of a cash level. If you go $200 over budget in a category there is no way of knowing its significance. On the other hand, if you go 200 percent over budget in a category, the significance is obvious.
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Allocate for the particulars in a category. For example, you decided housing is 30 percent of your monthly income. If 20 percent of your income goes to the mortgage payment, 10 percent goes to other housing expenses. Maintaining the percentage method of sub-allocating funds within the category allows you to better track the performance of the budget overall.
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Revise your budget after a month. Decide if the budget is going to be realistic for the long term. A budget is only good if you stick to it. If adjustments needs to be made, make them. Keep revising after every month until a solid, workable budget is in place that meets all priorities.
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