Now that you’re ready to create a budget (have a plan), here is an outline which can be used as your guide every month. For the outline, let’s assume your personal budget will be on a monthly basis. If you’re married, you AND YOUR SPOUSE are creating the budget TOGETHER. The best type of budget is “Net Zero”. This budget allows you to plan where you need your income to go. This may seem a little abnormal, but it might be helpful to think of your income as your personal employees or your own personal army. You are in charge of your net income and you need to give, spend, and save. You get to set the mission, which is to build wealth, eliminate financial stress, and eventually retire comfortably, and be generous to others along the way. You delegate authority to your money using your budget.
The first step is to figure your monthly net income, also known as, take-home pay. This is the money you have available for your household every month. If you and/or your spouse have an irregular income, create a budget based on the lowest amount earned. This will be the case if one of you work solely on commission for example. The net income for the month is what you have to work with. After you have figured your monthly income, prioritize your expenses as below:
- Food – groceries and household goods fall into this category. Everyone needs to eat. Also, there will be times while you’re grocery shopping that you will need non-edible items like soap and laundry detergent. However, the vast expense for groceries is food.
- Shelter/Utilities – Rent or mortgage and any necessary utilities are included here. Water, electricity/gas, and basic phone service are included in “necessary” utilities. An argument can be made as to whether internet and cell phone data services are “necessary,” but remember this is just an outline. An item may be necessary for one household, but not another. Cable is not a necessary expense, so it is not included in this outline.
- Transportation – this item of your budget would include any expenses to get you where you need to go. If you use public transportation, then this will include bus tickets, trolley/train tickets, etc. If you drive a vehicle, then your gas and insurance expenses will be included. Also, if you have a car loan, your payment would be included here.
- Clothing – this item is only for necessary clothing items. You would not include casual shopping here. A good example of this would be children’s clothes for a new school year, assuming they have grown out of their old ones. New shoes would also be included here.
- Health/Medical – Depending on your health coverage, this item needs to be included in your budget. Use this item for regular prescription medications you and/or members of your family take. For example, you may take blood pressure medication or are diabetic and take regular diabetic maintenance medication. Your necessary and regular medical/health expenses need to be accounted for in this item.
- Debt – figure minimum payments on all of your debt.
- Miscellaneous – Everything else should be listed here.
Now that you have all of your information, subtract your expenses from your income. Does it equal zero? If you’re number is negative, you have a deficit and adjustments need to be made so your total equals zero. If your number is positive, you need to assign that money to a category. Maybe you can use it to see a movie or go out to eat.
As I continue to post, details about each category will be posted, but the above listing is an outline. It is important to know that if you have not done a personal budget before, it will be more difficult in the beginning; however, as you continue to do them each month, it will get easier and easier because you will be aware of your income and expenses.
Once you create your budget, now you can analyze what it means. Are there items that you believe are underbudgeted or overbudgeted. It will be easier to assess your month finances and make the necessary adjustments to reach your goals. If you are stricken with a large amount of consumer debt and are aiming to pay it off ASAP, you can adjust your budget accordingly. You might be saving for family vacation or to buy a vehicle, enhance your savings or begin to invest for retirement. Whatever your goals, the budget is your plan to reach those destinations.
Thank you reading!
