How to Create a Budget That Works

Be brutally honest about your expenses. 

Usually when I hear people talk about their budget, it is usually an ideology of what they should be spending; not what they actually spend. It can be a scary thing to see how much money you are kicking out versus how much money is coming in but you have to be realistic or creating a budget will be useless.  If you have to save, your receipts for two weeks to get an accurate picture of how and where you spend your money then do this! Also, when adding bills that fluctuate; always estimate higher.  You do not want to use the lowest your bills has been if that isn’t consistent. 

Be conservative when entering income. 

One mistake beginners make when creating a budget is using their highest income or what they foresee their income to be in the future. This is a bad idea. When creating a budget, always use your lowest take home pay.  Do not include bonuses or overtime if they are not guaranteed.  If you do earn overtime, great! However, you do not ever want to come up short because you over estimated your income. 

Use categories for your budget.  

When composing your budget you want to do so with categories.  Some people like to keep it simple and organize between wants and needs.  I like to organize mine using the following categories: 

·        Housing: This would include Mortgage or rent,
phone, electricity, gas, water, cable, etc.

·        Transportation: Vehicle Payment, Fuel,
Insurance, Bus/tax fare, vehicle maintenance.

·        Food: Groceries and dining out.

·        Personal Care: Haircuts, nails, make-up, dry cleaning,
clothing, health clubs, etc.

·        Entertainment: Movies, Concerts, Sporting
events, etc.

·        Loans: Personal, Student Loans, Credit Cards.

·        Savings and Investments: Personal Savings,
Retirement Accounts, Emergency Fund

Make Adjustments.

Once you have created your budget and adding all of your expenses versus your income you will see if you need to adjust some of your spending. What I have learned from assisting others
with their budgets is that most of us spend a lot more than we actually
earn. If you learn that you fall into that category, do not panic! Make the appropriate adjustments, cut expense where you can, and look to bring in more income.