How to Create a Simple Budget

Living without a budget can be dangerous, as anyone who’s racked up massive amounts of credit card debt might tell you. Without a budget to control your spending, it’s easy to end up way over your head in debt. When you have a budget, however, your spending gets reined in under your own control. If you’ve never made a budget, there’s never going to be a better time to create your first one than now.

Check out these 3 easy steps to ease you into the ways of budgeted living:

#1 Planning Stage

If you aren’t budgeting, you probably don’t have a clear idea of what your expenses are. Over the next month, carefully record every single expense. Everything from laundromat and parking meter quarters to your monthly rent or mortgage should go into the budget. Also, if you’re contributing to a retirement fund, savings plan, or giving your money, these transactions should be recorded, too.

At this stage, we’re not yet budgeting – just gathering our data!

#2 Making Sense of the Data

Once you’ve reached the end of the month, it’s time to file all of those transactions under the proper categories. Keep it simple: groceries, rent, utilities, entertainment, car insurance, health insurance, gas/transportation, restaurants, shopping, maintenance/repairs, debt, etc.

Sum up the totals for each one of these categories. Unless you had unusually large or small expenses in any of the categories this month, you should probably be able to tell what you typically spend in each category on a monthly basis. You now have data to work with.

Total all of your expenses and compare them to your monthly income. Remember to factor in taxes, retirement plans, and other employee deductions. If you’re “in the red,” it’s time to make some changes in your spending habits. If you have money left over, then you have a great opportunity for saving or expanding one of your current budget’s categories.

#3 Implementation

A budget doesn’t do any good unless you live by it. Continue to keep track of your income and expenses in the coming months. However, don’t wait until the end of the month to total up your expenses. Update your monthly spending spreadsheet at least on a bi-weekly basis. That way you can have a good idea of whether you are over- or under-spending in any particular category well before the month comes to an end.

There’s no better way to start off 2013 than with a budget! What are you waiting for?

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