How Do I Develop a Financial Budget?

Kristie Lorette

The term financial budget tends to strike fear in even the strongest of people. It doesn’t have to and it shouldn’t though because establishing a financial budget simply requires you to evaluate your income and expenses. After evaluating the amount of income you have coming in and going out, you can assign pockets of money to cover your expenses, creating a financial budget is as simple as that.

A large array of budget management software, spreadsheets, and other personal finance tools can be downloaded for free.
A large array of budget management software, spreadsheets, and other personal finance tools can be downloaded for free.

The first step to develop a financial budget is to set up a spreadsheet in a computer program or create a chart with a piece of paper and writing instrument. Assign a row or column to each of your expenses. Primarily, expenses will be your living expenses, such as food, housing and utilities. Other expenses include transportation, such as car payments, gas and maintenance. You’ll also have miscellaneous costs such as entertainment and savings.

After assigning a category to each of your expenses, estimate the monthly cost for each item. Some of the costs may be fixed, such as your rent or mortgage payment. Most costs are variable, so you should make a conservative estimate. For example, during the summer months, the electric or gas bill is going to be much higher than in the spring or fall months.

Now consider your monthly income. The best way to get this number is to look at the take home pay on your paycheck stubs. If you have other sources of income, beyond employment, consider this income as well. Add up all of your expenses and see how this number compares to your income.

If the difference is positive, then your income is greater than your expenses. If the number is negative, then you have allocated more for expenses than you have income. If you are short on income, then you either need to find other sources of income or ways to increase your income, or cut spending where you can.

Once you develop a financial budget, the true challenge is sticking to it. You’ll need to track your expenses on a daily, weekly and monthly basis to make sure that your spending falls in line with your income. If your food bill runs over your allocated amount one month, then you may need to cut back in another area of your budget, such as entertainment.

In the end, developing and sticking to a budget comes down to the bottom line. In order to stay in the black, you should not be spending more money than you bring in. Ideally, you want to develop a financial budget so that you have extra money left over after covering your expenses.

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