If you're like most people, you probably hate the thought of making a budget. Perhaps it seems too difficult, or simply unnecessary. But in reality, making a budget is a simple process, and one that can save you a lot of money. Just focus on completing one step at a time.
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The first thing you need to do is gather all your information. Collect all your paycheck stubs, bank statements, credit card statements, and credit card receipts. Get any documentation you have pertaining to how you spend or make money and get it all in one place.
Now that you have all your financial information together, you should determine how much is coming in. Most people have fewer sources of income than categories of expenses so it is easier to determine your income first. List all the money you have coming in from your job, part-time job, side business, dividends, interest, or any other source of income. Add all those together to come up with your income. If your income fluctuates greatly from month to month estimate your average income. It is better to be a little on the low side of average than above your average.
Next you need to determine where all your money is going. Using your bills, credit card statements, and other financial documentation you gathered break your expenses into fixed expenses and discretionary expenses. Your fixed expenses are items such as your rent or mortgage, cell phone bill, health insurance, loan payments, and utility bills. These are costs that you have every month and have little control over. Your discretionary expenses would normally include things like food, gas, clothing, cleaning supplies, and entertainment. These are items that you either don't have to spend money on each month or you have the option to spend less on them in any given month.
Now comes the moment of truth. You need to compare your total expenses to your total income. You might be surprised to see that you are spending more than you make. You might find that you have a lot of money in the miscellaneous expense category and you are not sure exactly where it all goes. These are the types of problems that keeping a budget can help solve. Once you have your expense categories added up you can set a target for your expense categories for the next month. You just need to make sure that the total of your expense categories isn't more than your income. If you do not see anyway to decrease your spending to your income level, than you are going to need to increase your income to cover your spending.
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Now that you have a budget you need to actually stick to the budget. If you don't follow the budget then it will not be much help to you. The budget might be difficult to follow the first few months since you are used to spending and may have forgotten about irregular expenses. Don't get down about small failures, just learn from them and use them to help set a realistic budget.
Once you see where your money is going each month it will become easier to find places to cut back. Knowing where all your money is going and that you have enough money to cover all your expenses will help bring you financial peace of mind. If you need a little help getting started budgeting there are many places on the internet with sample budgets and budgeting tools to assist you in making a budget. A little effort spent making a budget can pay off big.
Andy Hough writes about frugality and living well on a small income at TightFistedMiser.com.