Ten Steps to Creating a Budget

Creating a budget is as essential to saving money as using a ruler is to measuring objects. Let's face it, making a budget is probably not on your top ten list of exciting things to do. More than likely-it ranks up there with going to the dentist on the scale of unpleasantness. How are you going to know how much money you are saving, if you don't know where your money is going in the first place? By following these ten steps, you can create a budget in about as much time as it takes to bake a pan of brownies. Go ahead, whip up a batch, stick them in the oven, and while that chocolate goodness bakes, you can create a budget that is tailored to you.

Disclaimer: This budget is a very basic and is designed to just get you started. Once you get better at following your budget, you can make your budget more advanced and more accurate.

Step One: Pick a method for tracking expenses
Use whatever works best for you-pen and paper, Excel spreadsheet, software program (like Quicken). I use a template from Microsoft Excel. You may want to experiment with a few methods to find what works for you. The key is to have your budget written down.

Step Two: State your monthly income
This is your take home pay, not your gross. Money that is taken out of your paycheck for taxes is out of sight and should be out of mind. Remember to include any interest earned on your investments.

Step Three: Prioritize
Money is a finite resource, and there are limits to what you will be able to purchase. Prioritizing your finances forces you to think about what really matters to you. That way, the next time you are tempted with an impulse buy, you can reject it confidently knowing that you are doing what is best for you and your loved ones.

Here are my financial priorities:
1. Tithing
2. Savings
3. Providing the essentials for my family-food, shelter, clothing, medicine
4. Reliable transportation
5. Communication-cell phone, internet
6. Entertainment

Remember, these are YOUR financial priorities. Your list may look different from mine, and that is perfectly okay. However, contributing to your savings/retirement account should be near the top of your list (more on contributing to savings later).

Step Four: List your current fixed costs. Your fixed cost should include the amount you want to add to your savings/retirement account each month.

Fixed costs include:

Tithing
Savings/retirement contributions
Rent/Mortgage payment
Car payment
Insurance premiums
Payments on your debts
Prescriptions
Utilities
Cell phone bill
Cable bill

No, not everything on the list is ESSENTIAL, but you should include any payment that you are obligated to make each month. We will look at ways to cut fixed costs later.

Step Five: Subtract your fixed costs from your income. This is your DISPOSABLE income. Don't spend time getting the exact amounts. Estimate, but err on the high side. This will give you a small cushion of extra money.

Here is an example:

Income=$2000/month

Tithing=$200
Savings=$200
Rent/Mortgage payment=$600
Car payment=$100
Insurance=$50
Payments on your debts=$50
Prescriptions=$50
Utilities=$100
Cell phone bill=$50
Cable bill=$50

So, your disposable income is $2000-$1450=$550. That means that you have $550 for food, clothing, gas, and any entertainment/fun things you want to do.

Step Six:
List your variable costs which include:
Food
Gas
Gifts
Entertainment
Eating Out
Beauty/grooming (hair cuts, etc.)
Clothing

Step Seven:
Divide up your disposable income among your variable costs.

For example:
Food: $300 (figure about $75-$100/week for a family of 3-4)
Gas: $100
Gifts: $25
Beauty: $15
Clothing: $35
Eating out: $50
Entertainment: $25

Step Eight:
Make sure that your fixed costs and your variable costs add up to less than or equal to your income. If they don't, go back to steps 5 and 6 to see where you can trim your budget.

Step Nine: Commit to Sticking to Your Budget
It may take a few months to fine tune your budget in order to get a feel for what you can realistically expect to spend each month. Budgeting is not an exact science. Life is full of surprises. The key is to have enough money set aside that when those surprises come, you can meet them without going into debt.

Step Ten:
Ding! The brownies are done. Enjoy their warm gooey goodness with the added satisfaction that you now have a budget.