How to Make a Budget 101

**Disclaimer**
I am NOT a financial expert, nor do I play one on the internet.  This post is merely my own personal experience and thoughts on Budgeting.   If you have serious concerns or problems with your money, it may behoove you to seek the advise of a trained professional financial counselor.

So, are you tired of living paycheck to paycheck?
Tired of running out of money before the month is over?
Do you make a decent salary but you never seem to have enough to pay all your bills or have any left at the end of the month?

Then maybe you need to put yourself or your family on a B-U-D-G-E-T!
Many people see the word BUDGET and start shaking and sweating.
They have been led to believe that a budget is an evil thing.
It is something to FEAR!!
Some think that being on a budget is like a diet....neither of them let you have any F-U-N.
But that couldn't be further from the truth!

A budget is simply a plan you write down for your money to follow.
If you have a clear plan for your money then you don't have to worry where it goes because you KNOW where it's going, because you are PURPOSEFULLY telling it where to go.
When was the last time it was a GOOD THING to tell someone where to go?teehee

But where to start?
How do you go about making a budget?
You can buy books, or better yet borrow budgeting books from your local library.
You can pay a large sum of cash to go to seminars or hire a professional money person to assist you in coming up with a budget.
It doesn't matter HOW you go about it, you just need to STOP procrastinating or ignoring your finances and  MAKE A BUDGET.....NOW!

Don't be intimidated, just jump right in.
The only mistake is NOT doing anything.
If you make a blunder, that's fine.  Just learn from it and make a new budget next month and so on until, through trial and error, you come up with a Budget that works for you!


Here's a pretty simplistic way that I went about setting my first budget. 

I use 1 month as the defining format as most bills are due monthly, so my Budget is a Monthly Budget.

First thing is, you need to write down how much money you have to live on each month.
You can't possibly Live Within Your Means if you don't know what "Within Your Means" is!

Add in all income for the month--your total net income from paychecks in a month, any child support(if you can count on that)and/or alimony per month, monthly pension monies, government payments(like SSI), any side jobs/weekend jobs and hobbies that bring in income, etc.

Now, once you have a total of what cash you have coming into your home each month you know how much you have to live on.
For now, don't count any other savings or checking account money other than this month's income.

Let's say You have a monthly income of $2,500 after taxes.  That's your net income.
Remember that....gross income=before taxes.....net income=after taxes.

Now, on a different sheet of paper start listing your bills.
There is a definite order in which you should pay your bills.

**I know some people tithe to their church or other religious group.  I am not addressing this issue here.  If you tithe, be sure to allocate the proper percentage of your income first, if you follow the "First Fruits" concept.

I see 3 Levels of Spending in a Budget.
*Primary Needs
*Secondary Needs
*Wants

*Primary Needs
1. In a perfect world and especially if you don't have any of your income going directly into savings BEFORE you get your check, take the 1st 10% of your income and and designate this your Payment to Self.
Before you pay ANY other bills, pay yourself!
If you make $2,500 net, pay yourself $250.  Put that first $250 into your savings or in a coffee can in your closet, I don't care right now where.  Just put it aside and DO NOT SPEND IT on monthly bills!

2. Next list what you pay for shelter(rent or mortgage-mortgage includes any taxes, PMI, etc.). Let's say you rent and that costs you $900 month.

3. Next list what you pay for utilities(electric, heat, gas, water, sewage).  This one is harder to figure as it can vary from month to month or from season to season.  If you can gather your utility bills from last year, find the average monthly amount you paid for last year, then add 5% to that to allow for any rise in the cost of these bills, because we all know, the cost of everything keeps going up.  Let's say you have heating/cooling/electric/water/sewage bills that average out to $240 a month.

Let's add up what you have spent so far of your $2,500 income.
$250, $900, $240=$1390
You have $1,110 left to spend.

4. Next list what you spend on food per month.
Another one that can vary.  Let's say you think you can feed your family for $250 a month. (Don't forget to include the money you spend at lunch when working and the money your kids spend at school if they don't bring their lunches too!)

That $250 leaves you with $860 remaining in your monthly income.

*Secondary Needs
After you pay yourself, your housing, utilities and food, you can allocate the rest of your income into any other Secondary Needs.  You can rank these other Spending Needs according to how important you feel it is to fund them.
Examples are....
*Insurance(health, medical, dental, home or renter's, car)
*Telephone
*Transportation(either bus/train/subway passes, car payments/car fees/car costs such as gas/maintenance, taxi costs, any other costs that are required to transport you to your job or out for pleasure)
*Medical/Dental/Pharmaceutical/Vision Co-Pays
*Credit Card Payments....hopefully you don't have any of these!And if you do, hopefully you are paying MORE than the minimum payment amount on them.

Let's say you need $400 to fund these categories per month.
This leaves you with $460 of your monthly income left to spend/save.

*Wants Spending
Once you have all your NEEDS met, then you can budget for your WANTS.
Wants would include, but are not limited to....
*Cable(tv, internet, etc.)
*Entertainment(such as eating out or take-out--unless you put that under your Food Budget, movies and concerts--don't forget to figure in the food or souvenirs, bowling, drinks out with friends, taking kids to an event that charges money and magazine and dvd subscriptions.  Note that I did NOT include shopping as entertainment. ;-)
*Clothing
*Home Decor
*Charitable giving--this is not a physical "need" but a spiritual one and not a want really but it's a good use of extra money.
*Gifts
*Any other thing you want to spend money on that is NOT a need.

Between the cable bill, Netflix, and buying clothing, let's say you requires $250 a month for the Want Categories of Spending.

After allocating money into all your categories, you end up with $210 Leftover at the end of each month's income.

Having a bit leftover is a good thing.
Why?
In case something unexpected happens one month, you have a small emergency cushion.
And you all know that emergencies WILL happen.

So take that leftover $210 and stash it into a safe place, like a bank account or your wall safe.  You want it safe but you also need it to be relatively liquid.  Don't stick this leftover cash into a bond or cd or the stock market where you can't pull it out if needed quickly without having to pay interest penalties.  Once you have built up a sizable emergency fund, then you can stash any leftover funds each month into something that bears some decent interest.

Once you have the Budget written down and set, your work isn't done yet.
Oh NO!
Go get a notebook.
Here's mine.  It cost me .10¢ on sale.  You can get a fancy smancy one if you want to spend a lot....but make sure you add that cost to your budget under a WANTS Category.....you don't NEED fancy....

Now every time you spend money this month, tuck the receipt or the stub from a paid bill or the invoice into the back of that notebook.  
At the end of the month, take all those receipts out and write the amounts into your notebook.

I write on each line--the date the money was paid, then where or what was paid, then list the amount.
(IE: 1/12/10   Water Co.   $60.24)

Start with #1-the payment to yourself.
Then write in #2-the rent/mortgage payment.
Then #3-the utility payments.
Next is #4-all the food receipts.
Continue listing, in the order you Ranked your Spending Categories, all your receipts....Primary Needs, Secondary Needs then Wants.
Then add up all your spending for the month.

If you stayed within your Budget framework, congratulations!
You have a good working Budget.
If your spending exceeded your Budget, go check each category and see where your Budget wasn't accurate.
As long as you are NOT spending more than you make, you are still in good shape.  Your spending may just need to be adjusted in some categories.  See which one(s) you need more cash for and which ones you had budgeted for more than you spent and move the income allocation around.

If you ended up spending more than you had coming in for the month, you need to closely examine what you are spending on and cut however much you are overspending.
And since you wrote down EVERYTHING you spent this month, it is easy to see where your money went!

My suggestion when looking for places to cut spending is to examine the WANTS categories first.
After that, look to your variable spending categories, like Food, Entertainment, Gifts, Donations to Charity, etc.  Next try to see if some creditors will give you a special rate or deal.  Call the utility companies and see if there is a special package or bundle rate, call the credit card company and see if they will lower your interest rate or transfer your balance to a new account that offers 0% interest for a limited time, etc.  It can't hurt to ask and you just might get them to give you a lower price!

If you don't have enough money to live within your means you have 3 options.....
*Increase your Income
OR
*Cut your spending
OR
*A combination of both

DO NOT put living expenses on a credit card if you run out of money!
This will only put you into debt or put you into MORE debt.
And it will KEEP you in DEBT!!
You need to bring more money in somehow &/or spend less.

Good luck on Finding the Budget that works for you!

Sluggy