How can I create an effective budget?

Question

I have a hard time not overdrawing my bank account, and keeping track of all my expenses. How can I budget and help get my financial life in order?

Answer 1

Try this free budgeting guide:

http://www.bills.com/guide/

Answer 2

You absolutely have to write everything down. Don't go too long without balancing your account. You should know how much money you have all the time. My bank has a telephone system that tells the balance as well as which deposits & payments have been posted.  A notebook to keep all your receipts & bills in would be helpful for staying organized. As far as budgeting, make a list of your priority expenses first & then see what you have left to work with for incidentals. Also, look for things you don't really need & see how much you might save by cutting back on them. Just saving one dollar a day is 365 dollars a year.

Answer 3

To create an effective budget you must have a complete knowledge of your income versus expenses and budget accordingly. Others answering this question have given you some very wise advise and I can see no benefit in repeating what they have said, so for further information check out the resource page.

Answer 4

To get started you can download a free budget spreadsheet from: http://www.bankrate.com/brm/news/debt/de... or use an on-line tool at: http://www.kiplinger.com/tools/budget/

Here are the steps to establishing a budget, in general you will be comparing your monthly income with your monthly expenses;

1. Determine your monthly take home income.  If you work in sales or on some type of commission make a conservative (low) estimate of your average income.  Then remember to save during the high income months for the low income months.

2. List your monthly expenses; Essentials first such as housing (rent or mortgage), groceries, utilities, car insurance, car payment, car gasoline.

3. Utilities and groceries will vary from month to month so determine a conservative (high) average amount.  I include anything bought at a grocery store in my grocery budget; food, cleaning supplies, kitchen and bathroom supplies.

4. Amortize your car insurance over the period of coverage, for example if you pay $600 for 6 months coverage the monthly expense is $100.  So put $100 each month in savings so you are ready for the next payment when it comes due.  A budget will help you begin to save for future purchases rather than paying for past purchases.

5. Include money in the budget for car maintenance, home repairs and medical needs, these expenses come along and will ruin a budget if you don't have something saved up.  I save $50 per month per vehicle for maintenance.  After some months go by and you have savings in the bank for car maintenance, home repair and medical needs it may be tempting to spend it, but don't.  Eventually you will need the money to repair your car or for some other unexpected expense.

6. Now that you have income budgeted for monthly essentials and debt payment the remainder of your monthly income can be budgeted for clothing, activities, gifts and holidays and savings.  Your first savings should be for a 3 - 6 month income emergency fund.  After 3 - 6 months income is saved you can start or increase savings for your retirement.  You might also start saving some amount each month for your next car so that you have at least a down payment.

One other important step to take is to record your spending for a month or two.  Most people are surprised by how much they are spending for some items; eating out, groceries, snacks and treats are typical.  Controlling your spending is the other side the budget balancing equation.

Finally, don't use credit cards unless you spend only what you have in your budget and pay the entire balance each month.  A budget takes 3 - 6 months to take effect, some expenses may come along before you have money saved, but stick with it.  Your budget will catch up with any unexpected bills and you will have savings to cover the expenses the next time.

With a budget in place will know what you can spend on your expenses, then resolve to spend only what you have.  Financial problems are the number 1 cause of stress in families, living within your income will eliminate this stress and allow you live for your future rather than for your past.  

God bless!

Answer 5

hello - I think its great you are thinking of this in advance and will work towards it toegther - .

here are some tips and ideas -

List out how much money you have coming in each month (paycheck, alimony, side jobs, etc.).

List out what your fixed costs are (rent/mortgage, car payment, car insurance, phone, cable, student loans, commute costs etc.) If you have credit card debt look at how much per card and which has the highest interest rates.

Track it by category -

retirement (401K, etc.)

home

car (payment, insurance, etc.)

gas

cable/electric/water

groceries

eating out

clothing

movies/plays (include the popcorn)

books

newspaper (if you already paid your news paper or magazine subscription, figure out the monthly cost and include that)

hanging out with friends (bar, pool etc)

non meal related drinks/snacks (Starbucks, diet coke, snacks)

other

other

(other could be alimony, whatever, things I did not list out but you have to pay)

and you will see quickly where your money is going to go. Then you can see if it is all the right places, or if you want to make a change and not buy so many clothes, see so many movies (or pass on the popcorn) etc. Do you need to have the car you have or is there a way to get a vehicle without a car payment? Do you need HBO?

Consider what is really important to you (wedding) and what is not and spend accordingly.

Be sure to put all left over money into retirement savings somewhere and not just spend it on something else (or put it towards paying down credit card debt). And keep tracking what you spend for at least 6 months. that will help you get into habits and patterns that are good ones.

Retirement savings are very important, so if you have a 401K or the equivalent, dont stop contributing to that. I see so many questions here about stopping contributing or taking the money already saved out, dont do that. The value of the compound interest is huge.

feel free to email me for more info if you like

good luck

Answer 6

You'll probably get a lot of advice on how to do things but at the end of the day it is habit and self control.  

When putting together a budget make sure it is achievable.  Cut back on luxury items (dining out, coffee, hobbies) if in the end you are spending more than you make a month.  

A great way to keep a budget is to write it down.  Make an envelope for each category (ie food, utilities, gas etc) and put the amount you you have on your budget into an envelope.  This is a way to keep track of what you have physically.  

Get rid of credit and debit cards.  

Answer 7

Apparently, you have no financial discipline. You have a known income. You shouldn't spend more than you have coming in. Since you are in charge, you have to be careful that you spend less.There are certain expenses which are ongoing like rent, mortgage, insurance, food and transportation. Beyond that you have to be selective as to spending or saving.