May 17, 2012

Budgeting 101: How to write your First Budget

Times have been hard for a while now; in fact it’s getting pretty boring really. But hard times don’t really need to be as bad as we make out – anyone can make them wealthier just by taking the time to manage their finances better.

So today it is time to take charge of the situation, sit down, look at your money (not literally, although feel free if that helps) and put together a budget. This budget will be your plan, if followed it will help you out of debt and into financial security.

Bills and Monthly Outgoings

You probably already know how much you earn, and I’m guessing you have a rough idea about some of your expenditure, but probably not all of it. Many people have literally no idea how they spend so much each month and that’s a problem.

OK, so first of all we are going to put together a list of your regular monthly charges.

So start by listing all the obvious things – rent/mortgage, heating, car payments, insurance – anything where you know that you are paying a set amount each month.

Now go through your bank statements and double check to see what you might have missed, or fill in any blanks if you weren’t sure about the exact amount you are paying.

General spending day to day

OK, so that’s the easy stuff, but what about groceries? Entertainment? All those things that can vary from one week to the next.

So now we are going to go through those past bank statements again. Ignore those monthly bills, but every single bit of normal day to day spending, note down what it was for and how much you spent.

Now give each item a category, try to pick categories appropriately, but feel free to go back and combine categories or create new ones if needed. Some example categories might be:

Work lunch, clothes, nights out, food shopping etc...

Also consider travel costs. Things like buying foreign currency, air tickets, hotels etc should be totaled for 12 months and then divided by 12 to give you an approximate monthly spend.

Wages and Income

Quite simply, note down what your monthly income is. If your income varies from one month to the next collect up as many previous pay-slips as possible and work out an approximate average income.

Putting it all together

Finally, you can put together a spread sheet noting down all of your income and outgoings each month.

Section one will show your income, section 2 should show your monthly bills, section 3 should list your monthly spending by category (those categories you created earlier).

You can then total up each section and get your monthly cash flow total – hopefully it will be positive.

How to use it

Simply enough, your goal should be to improve that bottom line figure – how you do this is up to you; if you see any categories where your spending seems higher than expected though, that is the place to start.

For more information about money, currencies and finance please visit my website here.

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