Like most people, you’ve probably overextended yourself by spending more than you had budgeted for the holiday season. Now that it’s the beginning of the year, a budget has never been more important.
Before trying to establish your budget, you need to start with the basics and understand what you are currently spending your money on. In a month how much do you spend on groceries, gas for the cars, heating, electric and water, cable and internet? You should also look at your expenses for going out to lunch or dinner, and extra-curricular activities for the kids.
After you have determined what your monthly expenses are, it’s time to sit down and begin planning your budget. First, list out on a spreadsheet how much you are spending on each of your monthly bills. For example:
- · Electric: $100
- · Internet/Cable/Phone: $200
- · Groceries: $250
- · Gas: $120
- · Water Bill: $35
- · Mortgage or Rent: $1500
- · Car Payment: $350
Once you have listed your monthly bills, calculate what you are spending per month on other expenses, like entertainment expenses. List them out on the spreadsheet as well:
- · Son’s baseball camp: $250
- · Daughter’s gymnastics: $100
- · Family dinner nights out: $250
- · Weekly lunches out: $50
Don’t forget some of your bills come on a quarterly, semi-annual, or annual basis. It’s best to begin saving for those bills now, so when they come due, you will already have money set aside. Add these onto the spreadsheet as well.
- · Tax Bills
- · Life Insurance
- · Homeowners Insurance
- · Car Insurance
Once you have a full listing of your month-to-month bills, entertainment expenses and non-monthly bills, you are now ready to create your family budget.
Let’s assume you get paid twice per month. For your quarterly, semi-annual, and annual bills, figure out how much you need to save each paycheck in order to have enough money saved when the bills comes due.
For example, if your life insurance policy has an annual renewal amount of $300, that means you need to save $25 per month in order to have the $300 available each year ($300/12 months). If you get paid twice per month, you need to save $12.50 per paycheck in order to have the $300 available at the end of the year.
Now do the same with your monthly bills and entertainment expenses. Figure out what you need to save each paycheck in order to pay the bill at the end of the month. For example, your $100 per month electric bill, you need to save $50 per paycheck and for the $1500 per month mortgage; you need to save $750 per paycheck, and so on.
Once you have all your monthly bills, entertainment expenses and non-monthly bills listed and broken down to what you need to save per paycheck, add up your total expenses and compare the total against the gross amount of your paycheck. Are your expenses greater than, less than, or equal to your gross pay?
If your total monthly expenses are greater than your gross pay, by building a budget you are now able to clearly see where you are spending and where you might be able to cut back. Since your rent or mortgage is probably a non-negotiable monthly payment, you’ll need to find other expenses that you can cut back on, such as entertainment. By making the change now, you can start to plan for a secure financial future.