Forming a Budget and Examining Your Expenses in Three Easy Steps

Although sticking to a budget can be complex, creating a budget takes just three simple steps. Whether you’re in debt or just want to avoid going into debt, here’s how to get started in constructing a realistic budget.

Step one in the budget process is determining what your income is each month. What is your net pay, and what is your partner’s or spouse’s net pay? Don’t forget to include any other regular income sources. Write the total amount down.

The second step is more time-consuming. You’ll need to go through your credit card statements and checkbook to figure this amount into your budget. This sum is the cumulative total of all your monthly payments. This includes your house or rent payment, average monthly maintenance expenses, utilities, car payments, house and car insurance, groceries, restaurant expenditures, daycare, credit card payments, and other miscellaneous expenses. Add these expenses up and write the total amount down.

The last step in formulating your budget is subtracting your expenses from your income. If you have money left over in your monthly budget, congratulations! If, however, your payments and debts exceed your income, your budget will need some work. You’ll need to take a hard look at your budget and decide your next move.

You can add to your income by taking an extra job, but this is too stressful or not realistic for many people. Most people opt to make cuts to their budget; both major cuts and minor cuts really add up. Can you get a roommate to help with the mortgage or rent, or cut down on your transportation costs? Can you buy clothes at a secondhand store, or cancel your magazine subscriptions? Your sacrifices will be worth the joy of sticking to your target budget.