Creating a Budget

A budget is a way to help you organize your finances. Basically, it tells you what money comes in, what money goes out, and where the money goes.

A budget can help you:

• get control of your finances;
• keep out of financial trouble;
• become a smarter consumer;
• set and achieve financial goals; and
• pave the way to a more secure future.

To create a workable budget for yourself, follow these five steps:

Step 1: Gather the information you need. Collect your paycheck stubs, tax returns, checkbook registers, credit card statements, and bank statements.

Step 2: Determine your monthly income. Add up any money you take home from your jobs and any support from your family. Remember, a credit card is NOT a source of income.

Step 3: Figure out how much you spend each month. Estimate your fixed and variable expenses. Fixed expenses are those that you have to pay each month. These include rent, car loan payments, and student loan payments. Variable expenses include those that change from month to month. Typical variable expenses include clothing, entertainment, utilities, and groceries.

Step 4: Figure out your bottom line. Add your total fixed expenses to your total variable expenses. This will be your total monthly expenses. Subtract your total monthly expenses from your total monthly income. The result is your bottom line.

Step 5: Determine if you are spending too much. A budget does not change the way you spend. But it will show you where some changes may need to be made. If your expenses are greater than your income, you will need to cut back on your spending. Do not rely on a credit card to cover any shortfalls. If you do have a shortfall, review your budget to see where you can cut expenses. Look at your variable expenses. Which ones can you cut back on or eliminate?

If you need estimated salaries for various careers, this may assist you in determining your estimated monthly budget.