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| Creating A Budget |
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Creating a realistic monthly budget or spending plan provides you with the vehicle to get you on your way to financial fitness. To create a budget, you need to know how much money is available, where the money is being spent and what adjustments need to be made. |
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Budget Process |
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- Record monthly income
- Record monthly expenses
- Compare income to expenses
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Record Monthly Income |
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- Record monthly income
- Record monthly expenses
- Compare income to expenses
Document your monthly income on the Income Worksheet in the center insert of this workbook. Follow the directions, remembering to list all sources of income your household will use to offset expenses.
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Record Monthly Expenses |
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Recording monthly expenses means documenting and tracking where and on what you are spending your money. Your expenses can be divided into one of these three categories:
- Fixed expenses usually do not fluctuate and require a set payment on a weekly or monthly basis. Fixed expenses are generally the most difficult to change.
- Variable expenses vary from week to week or month to month. They are the most flexible.
- Periodic expenses generally occur once or twice a year. They include items such as gifts, car repair and home maintenance.
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Documenting Expenses |
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Creating a realistic budget, and monitoring it, requires comprehensive and accurate records. Although this process may seem tedious in the beginning, it will assist you in becoming more aware of spending habits, in taking control of your finances, and in making adjustments where necessary.
Good records are the key! To track your finances, you will need some or all of the following record keeping tools:
- A checkbook register to record every check and/or debit card purchase
- Tracking methods for recording out of pocket expenditures and credit card purchases
- Well-organized filing system for all financial and personal records
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Compare Income to Expenses |
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You are now ready to compare your monthly income to your monthly expenses and determine what, if any changes are necessary. If after subtracting total expenses from total income your result is a positive number, this indicates that excess income exists and your income is sufficient to support the monthly expenses you have documented. If your result is a negative number, this indicates that a shortage exists and your income is not sufficient to support your monthly expenses. If a shortage exists, you have three options: increase your monthly income, decrease your monthly expenses, or do a combination of both.
Decreasing your monthly expenses may be the easiest, and provides the most immediate solution. Review monthly expenses using these pointers:
- Eat out less (the convenience of fast food and restaurants can cost hundreds of dollars a month, thousands of dollars a year).
- Curb habits such as the daily routine of buying a $3 cup of coffee which can add up to over $1000 a year.
- Comparison shop for household goods and groceries - check the unit, or per serving price.
- Shop with a list and resist impulsive buying.
- Evaluate the importance (and true need) of everyday luxuries such as cell phones, cable TV, entertainment, nonessential clothing and designer hair cuts.
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Budgeting Works |
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Successful money management begins with creating a household budget. Although the process may seem difficult and time-consuming, it is vital to gaining control of your finances as well as reaching your financial goals.
A working budget is more than a blueprint for the spending of future income. It becomes the family's plan for saving as well as spending and a road map for reaching your goals. While it requires you to estimate your available income and to make decisions about spending those funds, your budget will help you implement a money management plan for your future.
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