Step-by-Step to Balance a Budget
A budget is like a report card for your finances. Businesses, governments and individuals use budgets to forecast expenses, incomes and future assets. Balancing a budget simply means that you spend as much as you expected and earn as much as you predicted. A budget takes time to create and effort to maintain. With a little work, your budget will accurately reflect your financial state and provide you a tool to measure your financial health.
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Create a Budget
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Create a realistic budget for a predetermined amount of time. Budgets may cover any amount of fixed time from a single shopping trip to an entire year. Choose an appropriate amount of time where you can gauge your financial situation. Most families choose a monthly budget, since most of their expenses come due at some point each month. Monthly budgets provide enough information to make long-term forecasts and are flexible enough that they can be changed easily.
Estimate Your Income
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Estimate your income for the monthly budget. You want the income on your budget to be actual income expected. If your expenses include costs for benefits and state and federal income taxes, then you should use the gross amount of your monthly income. If your budget does not include cost of benefits or taxes, then consider using only the net amount of income received (how much is actually deposited after taxes and benefits) as your income.
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Estimate Your Expenses
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Your past expenses help to accurately predict your future expenses. Write out a list of all of your expenses. If you've lived in the same home for more than a year or two, call your utility companies or find your canceled checks to see the energy costs you paid in previous years. Reference your checkbook and credit card statements to document other expenses throughout the month. Some expenses are not paid monthly; you may pay your auto insurance quarterly or even semi-annually. Decide if you will break these costs up in as a monthly expense and save them until the bill is due, or simply add the full cost to the budget for the month the bill is paid. Remember to add things such as entertainment, clothing, medical expenses and money for savings in your budget.
Track Your Progress
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Track your progress by keeping all of your receipts and documenting the entire amount of income received. If you receive $20 from your grandmother for your birthday, include it in the amount of income brought in for that month. If you splurge and buy yourself something special for your birthday, include that expense in your budget. By tracking all of the money coming in and all of the money going out you will know where exactly where your finances are. Consider picking up financial software that allows you to download information from your bank accounts; this may make tracking your budget easier.
Adjust Your Budget
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Analyze your budget on a regular basis. If you're spending more in one category than you would like, review everything you bought in that category to see if they are needed expenses or if some of them are only wanted and not needed. If at the end of your budget, your expenses did not exceed your income, then you have a budget surplus. If your expense costs exactly match your budgeted expense amount then you have perfectly balanced your budget. If your expenses exceed your budget, you must adjust your budget by increasing your income or lowering your expenses before it will balance.
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