Creating a Budget (Visit this link)
A budget is a tool that can help you to:- see where your money comes from (income)
- notice how you use your money (expenses)
- determine whether you are spending money on what is most important to you
- set future financial goals
Step 1 - Calculate Monthly Income
Collect all your salary or wage stubs from the past 12 months and add together your after tax employment, disability, and other consistent sources of income. Calculate the monthly average income and write it in the first column of the Budget Worksheet. For example, if your total after tax income for the past year was $10,000, then your monthly average income is $833 (or, $10,000 divided by 12).Step 2 - Calculate Average Monthly Expenses
Collect receipts, paid bills, and other records for each expense item listed in the Budget Worksheet. Calculate a monthly average for each item and write it in the first column of the Budget Worksheet. For example, add the telephone bill expense for the past 12 months and divide by 12 to get a monthly average. If you don't have receipts for a full year, estimate the expense. You could keep a record of expenses for a week and multiply the total for each item by 52 to get a yearly estimate (then divide by 12 to get a monthly estimate). For example, if you spent $20 on gas one week, then your monthly estimate would be $20 x 52 divided by 12, or $86.67.Note: Reviewing your monthly bank statement or checkbook register may help you remember how much you spent on items over the past year.
Step 3 - Calculate Net Income
To calculate net income, subtract the total expenses from the total income in the first column of the Budget Worksheet. If net income is a positive number, you have money available for savings or to spend. If net income is a negative number, you might be using savings to pay monthly expenses, borrowing money to pay debts, or not paying your bills in full or on time. If your expenses are consistently greater than your income, to reduce debt you will need to cut your spending. A credit counselor could help you determine what cuts you can make. You might also need to talk with your case manager to find assistance programs that will help you meet basic needs.Step 4 - Review Patterns
Look over what you have recorded so far on the Budget Worksheet and take a moment to reflect upon the following.- Did anything surprise you?
- Do you have money for what is most important to you?
- Did you see changes that you would like to make?
- Can you make those changes? What would help?