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Building a Budget
| A budget allows you to keep track of how much money you have, how much you're taking in, and how much you're spending so that you can plan ahead.
It might sound like a lot of work, but it's actually pretty simple and the results are worth it. By spending just a little bit of time creating a budget, you can save yourself hundreds, or even thousands of dollars a year. To build a budget, you need to assess your current financial situation. This will give you a strong base to build from as you start to learn better financial habits.
| The first step in assessing your financial situation is to figure out how you spend your money by tracking your spending for a month. Write down how much you spend and what you spend it on, as well as the money you give to your children or other family members and other miscellaneous expenditures. You should write down everything-every bill, every grocery list, even every cup of coffee.
Also, save all of your ATM and other receipts. No expense is too small to record in your notebook because small expenses will eventually add up to big ones.
| Click here for your Weekly Spending Log Worksheet
| As you can see on your Weekly Spending Log, there are three types of expenses: Fixed Variable, and Periodic.
Fixed expenses stay the same from month to month-your rent or mortgage payments, your car payments, and other loan payments.
Variable expenses change from month to month- money you spend on clothes, entertainment, meals, dry cleaning, and so on.
Periodic expenses are expenses that you do not pay each month. They may include your insurance payments, property taxes, and your child's school tuition, among other things. They can also include unexpected expenses such as doctor's bills.
| Although you don't have to pay periodic expenses every month, you should always keep some money in savings so that you're able to pay for them when necessary.
After you have grouped your expenses into the three types, add up your total monthly income. This should include income from all sources: your employment, your spouse's employment, and any interest you earned from your savings. This is called your gross income.
When you have all of your expense and income information recorded, subtract your total monthly expenses from your gross income.
The money you have left over after you subtract expenses is called your net income. For example, if your gross income is $2,000 and your expenses are $1,500, your net income is $500 ($2,000 - $1,500 = $500).
| However, if your expenses are greater than your gross income, that means you are spending more than you take in each month. That is bad news.
If your monthly spending is less than your monthly income, you've got a budget surplus. But if you have a surplus because you are only paying the minimum due on your credit cards each month or because you are not putting any money away in your savings, that's not good.
If you have little to no debt to pay off, then we advise that you keep a minimum of six months of living expenses in a savings account as a financial safety net. Below you'll find the worksheets that you can use when building your budget.
| Budget Worksheet
Household Budget Worksheet
| After you have lived with your budget for a month or two, compare your actual spending to what you budgeted. You may need to make some adjustments to your budget if certain expenses are always higher than what you budgeted.
Once you feel certain that you have a workable budget, review it at the end of each month. Over time, you may need to revise it if certain expenses go up or down-your medical insurance, for example-or if your household income increases or decreases.
You should treat your budget as a work in progress that changes as your finances change.
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