How to Figure Out a Budget

Figuring out your budget takes time and practice.

The first step to successful financial management is to figure out your budget. A budget is a spending plan for a specific period of time. It can be for a week or for a month. Most people budget for each month. A budget can be flexible, adjusting as your income changes. Amounts can also be transferred between categories, allowing you to deal with unexpected expenses without overspending your income each month. Figuring out your budget can take time, but it is worth the effort.

Things You'll Need

• Old account statements
• 3 months of receipts

Instructions

1. Gather your receipts or look at your bank statements for the last few months. Organize your expenses into basic categories. Common categories include groceries, entertainment, eating out, clothing, medical expenses, housing, insurance, transportation costs, debt payments and utilities. You can make the categories as broad or as specific as you want to. For example, some people will combine eating out and groceries, while other people will divide their utilities categories into the specific utility type.

2. Add up the receipts for each category, and then divide that number by the number of months' expenses you are looking over. It is better to use more than one month's expenses so you can find the true average amount you spend. One month would not show unexpected expenses or reduced amounts according to seasons. The farther back you go, the more accurate the category amount will be.

3. List the categories and the amounts for each month. Add the numbers together and subtract from your monthly income. If this number is negative, you have overspent and will need to adjust the spending in each of your categories until you reach zero. If the number is positive, decide how you will use that money. It is a good idea to put it in savings or add it toward your debt payments.

4. Track your spending each day. You can use computer software or do it by hand. Some people use cash for their variable categories such as food and entertainment to make tracking easier. Once you have spent all the money in your category, you can no longer purchase items that fall underneath your category.

5. Transfer money between categories to cover emergencies. For example, if you have an unexpected medical expense, you can transfer money to cover it from your entertainment or grocery budget.

6. Adjust your budget after the first month so your categories are realistic. For example you may find that a $200 per month grocery budget is not reasonable, and you may have to reduce your clothing budget to make your budget livable.

References

• CNN Money: Making a Budget
• MSN Money: How to Build Your First Budget