A budget becomes necessary when you want to gain more control over your spending and begin working toward your financial goals, whatever they may be.

A personal budget, sometimes called a household budget, is simply an itemized summary of your expected household income and expenses for a defined period of time, which is typically one month.

While the word budget usually holds a stigma of being associated with restricted spending, you should really look at it as a way of learning more efficient spending habits.

A budget is a tool that will show you how much money you expect to bring in compared to how much money is used for expenditures. These expenditures can be required expenses such as mortgage, rent,
and, utility payments to discretionary spending like entertaining and eating out at restaurants. Your budget becomes a visual representation of your earning and spending habits.

A written monthly budget allows you to plan for how you will spend and/or save your money each month while also allowing you to keep track of your spending patterns and trends.

Creating a budget has never been known to be an exciting activity, but it is one of the most important steps you are going to take in achieving your financial goals. Budgets rely on balance. If you spend less in one area, you can spend more in another area. That means you could possibly use that money to pay off some debt, invest, or build an emergency fund.

Before creating your budget, it is important to have as much detailed and accurate information about your finances as possible. You want your budget to be a completely accurate representation of your monthly financial landscape. It will show you where your money is coming from, how much you have each month, and where it is all going each month.

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Creating A Simple Personal Monthly Budget

  1. Gather all of your financial statements
    As I said earlier, you will want to have as much detailed information as possible. Find as many bank statements, investment accounts, recent utility bills, and any information regarding any sources of
    income or expense that you can. The more you can find, the better. If your expenses are variable, find a reasonable average.
  2. Record all of your sources of income
    If your income is in the form of a regular monthly paycheck, use the net-income. If you are self-employed or have various side hustles, include these as well. Also include your spouse’s income. Any income that will be used to pay your expenses should be included in this list. Add all of these together and record the number as a monthly amount.
  3. Record a list of monthly expenses
    This is where a deal of self-examination may come into play. Create a list of all expenses that you expect to incur over the course of a month. This list would include mortgage or rent payments, vehicle payments, auto insurance, life insurance, groceries, utilities, gasoline, gifts, entertainment, student loans, retirement savings, Amazon Prime membership fees, Netflix fees, etc. Anything you spend money on during a typical month.
  4. Break your expenses into two categories: fixed and variable
    Now that you have your complete list of monthly expenses, break it up into those that are fixed and variable.
    Fixed expenses are those that stay relatively the same every month and are required parts of your way of living. These would include your mortgage, vehicle payment, cable/internet service, credit card
    payments, etc. They are, for the most part, consistent and not likely to change in your budget.
    Variable expenses are those that will change from month to month and include items such as groceries, gasoline, eating out at restaurants, gifts, etc. The amount you spend on these items could change from month to month and are not really essential to your living conditions.
  5. Find the total of your monthly income and monthly expenses
    Add up all of your income and record that number. Do the same with your expenses and record that number. This is the moment of truth when it comes to creating a budget.
    If you have more income than expenses, you are off to a great start! You can begin to allocate the excess money you have coming in to areas of your budget like paying off debt, savings, or retirement. If,
    however, you have a higher number in your expense column than you do in your income column, it is time to make some adjustments to your budget. This is where the real magic of a budget comes into play.
  6. Adjust your expenses
    The ultimate goal is to have your income and expense columns be equal. This means that all of your income, every single dollar of it, is accounted for and budgeted for either an expense or savings goal.
    If you are in a situation where your expenses are greater than your income, you should look at your variable expenses to see if there are items that can be adjusted or cut completely. Since these are items
    that are typically non-essential, it is often easy to find ways to make adjustments in this area. A few dollars here and there in this area makes a huge difference on the bottom line.
    You would be surprised at what getting rid of a streaming service, cutting down a level of internet service, going out to eat less, or quitting the gym may do for your monthly budget.
  7. Follow up on your budget
    At the end of every month, when you are creating your budget for the next month, take the time to review your budget for the previous month. See where your numbers for income and expenses fell in reality compared to what you anticipated. This can help you make any adjustments for future budgets and spot spending patterns. It will show you where you missed the mark and where you did well. Little wins are still wins.

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