A budget is a tool that helps you keep track of your money and spending habits. It includes an estimate of your income and expenses and serves as a guide to help you achieve financial freedom and peace of mind.
Identify your wants versus your needs. Examples of needs include mortgage/rent, utilities, groceries, insurance and other bills. Wants may include cable, extra services on your phone, dining out, trips to the salon and movies. Track your spending habits from the last few months to give you a better idea of where your money is being spent. This will allow you to make sound decisions for the future based on actual spending habits.
Re-evaluate spending and goals frequently as they can change for both short-term and long-term planning.
Gather your statements, bills and receipts from the previous month. Use a budget spreadsheet, online or printed, or simply write down items on a blank sheet of paper. Start categorizing your spending habits under different topics such as Utilities, Gas, Groceries, Insurance, Child Care, etc.
Determine how much of your monthly income you are going to save. Most experts recommend that you save at least 10% of your income.
Determine your monthly income. Include all income, such as salary, Social Security, child support, etc.
List out all your expenses and edit your categories as needed.
Subtract your expenses from your income. If this number is positive, you have money left over to save or invest. If this number is negative, you are spending more than you are earning (and may be paying fees on top of your existing expenses).
Based on your income and current spending, determine the amount of income that needs to be allocated to each item. (For example, allocate 30% to mortgage/rent).
Determine ways you can improve your spending and saving habits. Set goals. (How much do I want to save? How can I cut back on dining out, clothing, or my cable bill?) In order to save, your budget allotments cannot add up to 100%. If they do, you are spending everything you earn.