Most of us know how much money we make, but have little clue as to exactly where it goes at the end of every month. Establishing a feasible budget forecast based on your income and living expenses will help you find areas to adjust your budget lines and save money.
Calculate your annual income. The U.S. Department of Housing and Urban Development recommends using no more than 30 percent of your annual income for housing. So, if you make $50,000 a year, you should be spending no more than $1,666 per month on rent.
Itemize your monthly expenses. Add these items up, but keep separate line items. You will want to shop around to see if you can lower some of these costs, for example, the cable bill. Estimate 15 to 20 percent of your monthly income for utilities. Leave out car payments for now.
Calculate 2.5 percent of your monthly income for clothing. Plan to set aside 2 percent of your monthly income for savings. Calculate 8 to 15 percent for food and entertainment.
Write down your monthly income and subtract your anticipated savings from it. Subtract the expenses from Steps 1 to 3. Determine the amount left in your monthly budget.
Determine what you can afford in a car payment based on the amount left. You may want to lower your transportation expense by purchasing a cheaper car that is also more efficient on gas. Once you have determined whether you can afford a specific car or not, recalculate Step 2 including the car payment to determine your actual monthly budget.
Calculate your annual budget by taking your monthly budget costs and multiplying them by 12 months.
Open a checking and savings account where the checking account automatically transfers money not required in your budget into the savings account. If you know your budget, you can set the amount up with the bank. This will help you remain disciplined to stay on budget.