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The Budgeting Process: How to Create a Budget

By Edited Nov 13, 2013 0 0

So, you've made the decision to take control of your finances by creating a budget. That's great and you should be excited, because you have already taken a huge step in the right direction! Now, you're probably wondering where in the world to start the budgeting process?

The first step of the budgeting process is to start researching your finances. You will need to go through all of your monthly bills and write them down with their corresponding payments. This will include everything from your electric bill to your credit card bills to your car payments. Anything that has a recurring monthly payment associated with it needs to be written down.

Once you have all of your monthly bills written down, you need to write down your annual bills. These will be things like car insurance and annual property taxes. By listing out your monthly and annual bills, you will have a good idea of what your budget's necessities will be.

The next step in the budgeting process will be for you to monitor your miscellaneous spending for the next pay period. You need to write down every purchase you make that does not fall within the "monthly bills" category during your next pay period. It is very important that you write everything down! This includes everything from gas to groceries to going to the movies. Write it down! During this step, don't feel like you need to do anything differently either. Spend like you normally would.

Next, once you have completed the previous step you will need to look over your miscellaneous spending and begin totaling it up. What you will need to do is break it up into categories. Things like: Groceries, Fuel, Movies, Clothing, Out-to-Eat and Miscellaneous are all great categories to have.

The last, and most difficult, step in the budgeting process is actually creating your budget. First, you need to know how much money you will have coming in each pay period. If you work at a job where your pay checks vary, it will be best if you can create a budget based on one of your lower pay checks. This will help ensure that you will have enough money to finance your budget each pay period.

Okay, now you need to sit down and create the most important categories first. Things such as: Mortgage, Utilities, Car Payment, Car Insurance, Fuel, Groceries, etc… These are the things you have to have and cannot live without. Once you have those categories written down, you need to determine how much you will need to deposit into each category every payday. Then, subtract it out of your income to determine how much you have left to allocate to your budget.

For example: I bring home $2000 every pay period. I have the following "must have" categories: Mortgage, Utilities, Fuel, Groceries and Car Insurance. My mortgage is $1000 per month, Utilities are $600 per month, Fuel totals $200 per month, Groceries equal $500 a month and Car Insurance comes to $80 a month. This means for each pay period (assuming I get paid twice a month) I need to deposit the following into each category: Mortgage - $500, Utilities - $300, Fuel - $100, Groceries - $250 and Car Insurance - $40. Therefore, my mandatory expenses for each pay period total $1,190. Therefore, I have $810 left to distribute to the remaining categories.

Once you have your mandatory categories covered, you will be able to use the information you recorded from your miscellaneous spending to determine how much needs to go into your remaining categories. Once this is done, you can give yourself a big pat on the back as you will have successfully made it through the budgeting process and created your budget!

The only thing left for you to do is to stick to it. The first few months can be frustrating as you will most likely see areas that will need to be adjusted, but take comfort in knowing this is normal. If you don't want to keep your budget by hand, you might consider looking into personal budget software to help you out. Budget planners are a great way to reduce your budgeting stress. The most important thing to remember during the budgeting process is to stick to your budget. Once you get the hang of it, you will start to see the benefits that budgeting brings!


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