The hardest thing about budgeting is convincing yourself that you need a budget, especially if you have limited resources. However, setting up a realistic budget is the first step towards establishing control over your finances. A budget can help:
- Provide a reality check of how much money you have and how it's spent from month to month.
- Make sure you live within your means and identify opportunities for saving money.
What You Need
Your goal in establishing a budget should be to know exactly where you stand financially for the month. Without this, your debt and financial future can quickly spiral out of control.
To create a budget, you need to first gather information on all your expenses including:
- Monthly bills (rent, mortgage, utility bills, other)
- Credit card statements
- Bank statements
- Pay stubs from anyone contributing to your household income
- Any receipts you may have.
Don't forget to include close estimates of miscellaneous monthly expenses you paid in cash like amounts spent on gas, eating out and going to the movies.
Try to be as detailed as possible - the more details you provide, the more realistic (and therefore useful) your budget will be.
To make it easier for you to set up a budget, we provide a home budget analysis calculator for you to use.
After you create a budget, compare your expenses to your assets and income. If your income is higher than your expenses, you have survived the month financially. If your expenses are higher than your income, there are problems. You will need to identify and address these as soon as possible.
In either case, your goal should be to increase your available sources of income while decreasing your monthly expenses. Going forward, you should redo your budget on a monthly basis to see how you are doing and to help you get on track and stay there.