Budgeting

Creating a budget is a simple way to help you understand how much money you have coming in and where your hard-earned dollars are being spent. Though not an exciting task, creating a budget can help you pave the way to a successful, secure financial future.

Five easy steps to creating a budget

1. Gather all of your resources

This may include pay stubs, utility bills, rent bills, mortgage statements, checkbook registers, credit card statements, etc.

2. Determine how much money you earn each month

This is money that you bring home from your job and any support given to you by a family member. Your credit card is not considered money you earned.

3. Figure out how much you spend each month

Include fixed and variable expenses. Fixed expenses are expenses you pay each month and the amount does not change. Your rent or mortgage payment, car payment and student loan payments are examples of fixed expenses. Variable expenses change each month. Groceries, entertainment and clothing are examples of variable expenses.

4. Add your fixed expenses and your variable expenses together

This number is your total monthly expense. Subtract your total monthly expense from your total monthly income. This result is your bottom line.

5. Determine whether you are spending too much

Ideally, you will want to have a positive bottom line. This means that you are spending less than you are earning. If your bottom line is negative, you are spending more than you are earning. Look at your variable expenses and see where you can cut back. Instead of going out to dinner and a movie every week, go one night a month instead. Instead of buying your groceries at the gourmet grocery store, consider shopping at a discount grocery store. Do not rely on your credit card to make ends meet; your credit card is a debt that must be repaid and will only affect your budget for the worse.

In summary

Monitor your budget on a regular basis; assess your bottom line and make adjustments as necessary. Living on a budget doesn’t mean you can’t afford to do fun things from time-to-time; instead, it allows you to do fun things while saving for life’s unexpected expenses down the road.