Budgets Made Easy Step 5: How does all of this come together?

Now that you’ve figured out your monthly net income, tracked your expenses for one month, and had a brief overview of the types of expenses you’re going to incur, you’re probably wondering how all of these fit together to become a budget.  Well, that’s exactly what we’re going to do in this step.

Let’s start by putting your monthly net income up top (#1).  This is essentially the “bottom line” (I know it’s actually up top, but bear with me) of your budget.  Now let’s put that same amount at the bottom and label it total expenses (#2).  This will ensure that we do not budget for more expenses than your monthly net income.

The next step is to fill in the middle part between your income and total expense lines.  You will fill this in with your expense categories that we previously discussed.  List your expense categories that you have (#3).  Remember, by tracking your expenses you should know what categories you need and which ones you can do without.  The last step is to determine what amounts should be put in for each category.  Have your one month of tracked expenses next to you and make an educated decision for each category (#4). 

The toughest part of this is to make sure all of your categories add up to your total expenses line.  What I like to do is put 10% towards savings, then go through all of the rest of my categories and then put anything that’s left back into the savings account.  I want to make sure I put at least 10% to savings, but I know the rest of my categories may not exactly add up to the other 90% (they may only add up to 87%) so I take that difference and add it onto my 10% into savings (it would end up being 13% for this specific example).

Hopefully you find that there is more money to be spent than you originally thought.  If that is the case, then I assume you’ll have no problem finding areas to spend or put that extra money.  It can be difficult if the opposite is true for you.  There are only select areas where you can save money and you’ll have to focus on these.  If you are kind of stuck with your current fixed expenses (like most people are), then you’ll have to target the variable expenses.  I encourage you to try to save money on the “wants” in your life, so that you have enough money for the “needs”.

At this point you have your budget completely set up.  There is only one final step left (which we’ll discuss next week) and that is to continue to track your expenses and modify your budget as you go.

-Jake-