A personal budget will help you manage your finances, keep you from overspending, and bring you closer to your goals. Here’s how to get started on your monthly budget.
Calculate your income. In many cases, your income will simply be your monthly take-home pay. But there are other sources of income: payment for odd jobs, child support or alimony, Social Security payments, distributions from your retirement accounts, gifts, etc.
Include income that you can count on, month after month. You can treat non-regular income as a windfall, and stash it away in your savings. If you don’t receive that income, you can still be confident in your budget for the month.
To save and stay out of debt, commit to spending less than your income every month. You’ll also avoid overdraft charges and late payment fees on your other obligations.
Calculate your expenses. Start with your fixed expenses first. List the bills you know you need to pay every month: your mortgage, utilities, car, cable, credit cards, loans, insurance, and any other bills you receive with a monthly due date.
Your variable expenses are a bit trickier.
You can estimate the amount you spend every month on groceries, gas, clothes, dining out, entertainment, medical expenses, household items, etc., but your budget will be much more accurate if you look at your past behavior.
Some accounts make this easier, with a year-end summary that categorizes your spending for you. Still, your spending patterns may have changed since 2010, so try looking over your most recent statements. Sort your spending into different categories, and calculate the totals for the month. It can take a bit of legwork, but it’ll be worth it to gain clarity on your financial habits.
If you use cash for many of your expenses, and you want a realistic view of your spending habits, try writing down your cash transactions for a month. Keep a notebook with you, or add notes on your cell phone. For a quick estimate, total the cash withdrawals you made, and lump them in the categories that you know you’re most likely to use cash for.
Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.