How to create a budget

One of the best ways to get a handle on your personal finances is by creating a budget. What exactly is a budget? Quite simply, budget is a financial plan. Most companies and small businesses create budgets, but by contrast, not that many individuals create budgets for their personal finance. Below, I will outline some steps you can follow to create your own budget.

monthly-budgetBefore you get started, you want to collect all documents related to your monthly finances, like bank statements, brokerage statements, phone and cable bills, etc. Once you do that, start listing everything that you spent money on over the past month. You will start to notice that some items, such as rent or utilities, are paid every month and remain relatively stable. These are called fixed expenses. On the other hand, things like entertainment and car repairs do not occur in such a regular way. These items are called variable expenses. On the whole, you will have more control over the variable expenses over the short term, so this is the area you may want to analyze and try to optimize in the near term.

One you have all your expenses written down, you must now account for all income that you receive. This is fairly easy to figure out, but don’t forget to include income from nontraditional sources such as dividends.

Now that you have your income and expenses, you should subtract expenses from income and end up with a positive figure. If this figure is negative, you are spending more than you earn, and you must get out of such a situation as quickly as possible. Review your expenses and see how you can lower the amount you spend monthly. You need to keep making cuts until your expenses are in line with income.

You should use a spreadsheet program to create your budgets, or you can utilize personal finance software like Quicken. If you want to get a free trial of various personal finance programs like Quicken, Quickbooks, and Turbotax, make sure you check out this freebies site >