Creating a budget is not difficult and should take between 20 minutes and a few hours depending on how well you know your financial situation.

Step 1:

Take a snapshot of your monthly income statement. In other words start with a spreadsheet and make two columns. Label the first one income. Each row below it should contain the amount of income you are receiving from various sources. Typically, this will be your monthly salary from work, but make sure to include any additional income you might be receiving. Next, Label column 2 “Expenses.” Your monthly expenses like cell phone bill, rent and water bill should be easy because they come monthly. If you have annual expenses like membership dues divide them up so you have a monthly figure. Also, include your variable expenses like groceries, eating out, gas, credit card bills, etc. In short, include everything and make sure each has it’s own row.

Step 2:

Analyze. At the bottom you will get your totals. If your expenses are greater than your income, you have a big problem. Look through expenses and figure out where all your money is going. Are the little things adding up to a lot? If you need to cut back on spending start playing with the numbers in each category. Start with the things that are the easiest to control like groceries, eating out, clothing and gas. If you can shave some of these expenses down does it solve your problem? Having this information will allow to start making informed decisions about your finances. The picture will become more clear when deciding if you should go on the next vacation, refinance the mortgage or consolidate credit cards.

Step 3:

Creating a budget. Now that you have your numbers organized and have done some analysis creating the budget is easy. It’s really up to you how much you want save. Priority number one is getting expenses below income. Next, a good place to aim is to get expenses at or below 70% of your income. For instance, if your net income is $5,000 per month try and get expenses at or below $3,500 per month. Since it’s typically easier to spend less than earn more, start by looking at expenses to cut. To do this start by cutting back expenses little by little in categories you can control. If you currently spend $2,000 per month on groceries, take that down to $1,500. Do this until you reach your goal.

Step 4:

Implement. This is the hardest part. Actually following your new budget. In order to stick to the budget you need to control your perception of your finances. My first suggestion, separate bank accounts. Have a checking account and a savings account. Since your debit card should be linked to your checking account that is probably the account you spend most of your money from. If your goal is lower expenses to 70% of income, move 30% of your paycheck the day it hits your account to your savings. Example: Let’s say you get paid twice per month and your net paycheck is $2,500 for a total of $5,000 per month. You’ll want to move $750 per check from your checking account to your savings account. Now you are forced to spend what your budget allows which is the remainder in your checking account. This is critical, move the money out of your spending account immediately!

Finally, make sure you maintain the budget once every month. Set a reoccurring calendar appointment to review your budget at month end and check in on how you are doing.

Where to get started:

If you are not good with spreadsheets like excel or you don’t have it on your computer, no problem. Login to Gmail or Google and go to Sheets. This is Google’s free version of Excel. They have a great free template for a budget which is a great place to start.

If you need more detailed assistance or professional help feel free to reach me at my website: www.softwealthmanagement.com