Budgeting Made Easy:
What You Need to Know
Step 1
List all sources of monthly income
including gifts, bonuses, tax refunds, cost of living increases, dividends,
and interest income, etc.
Use the Income Worksheet in this
booklet to keep track of your income.
Step 2
Separate expenses into three
categories: fixed, flexible, and discretionary.
Use the Credit Card and
Expenses Worksheets in this booklet to keep track of your expenses.
Fixed expenses remain the same
each month. Examples are rent, car loans, insurance premiums, etc. Add up
all fixed expenses.
Flexible expenses are items
for which you control the amount spent. These include household and grocery
items, restaurant expenses, utilities, entertainment, out of pocket expenses,
etc. Add up all flexible expenses.
Discretionary expenses are items
that are not necessary for survival. If you are spending more money than you
earn, items from this category should be eliminated or cut back. Add up all
discretionary expenses.
Step 3
Total all monthly expenses and
subtract the total from your total monthly income.
Step 4
Divide your total expenses
by the frequency of income or the number of paychecks the household receives
each month. (For example: $1,500 in expenses divided by 4 paychecks = $375
needed per paycheck to pay for your expenses.) If the expense total is greater
than the income total, you need to decide what steps you can take to reduce
your monthly expenses or to earn additional income.
Step 5
Prioritize your expenses. Keep
track of when you use credit cards. Then ask yourself if you want to borrow
every month for these expenses.
You should set aside enough
savings each month to cover fixed and some flexible expenses. By reserving
your funds in this way, you can avoid living from paycheck to paycheck.
Review your spending plan each
month, to start. At the end of each month, compare actual expenses against
what you budgeted. As time passes, you may want to only perform this
comparison on a quarterly basis.
NOTE: Before using the following
Worksheets, please make 12 or more copies of each of them. This will allow you to
keep track of your budget for the entire year and will permit you to make necessary
adjustments in your income, expenses, and priorities.
