A budget is a tool to help you get a clear picture on how much money you make and spend each month. Creating a budget is a good exercise that provides insight about your spending habits. Learn how to use budgeting as a road to financial freedom.
1. Gather all of your financial statements together.
This includes your bank and investment statements, utilities, cell phone bills, cable and internet as well as any online subscriptions you may have that you may have forgotten about.
2. List all of your fixed expenses.
Fixed expenses are those that do not change such as debt payments, mortgage and/or rent and utilities. These are expenses you have to pay each month.
3. List all of your irregular expenses.
Irregular expenses are those at are due throughout the year. An example of an irregular expense is car maintenance or insurance.
4. List your discrentionary expenses.
Discretionary expenses are what author David Bach calls your Latte Factor, or unnecessary expenditures such as daily coffee at Peet's or Starbucks or a weekly visit to the nail shop.
5. A, B, C, your expenses.
A's are needs. B's are needs you can be more efficient with and C's are wants. A's are usually your fixed expenses. C's are typically your discrentionary expenes.
6. Total your expenses and compare them to your net income.
If your expenses are more than your income, review your B and C expenses and find ways to reduce your spending. If your expenses are less than your income, congratulations! Continue to find ways to save on your B and C expenses. This will give you more money to invest or save for a rainy day.
7. Review your budget regularly.
Track your actual income versus expenses and examine them on a monthly basis. You'll see how well you're diong, which may make you more motivated to keep up the good work.
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