Download and Print the Budget Worksheet
Use the worksheet to help get started on completing all the following steps. You can also create your own budget worksheet using free spreadsheet programs, including those provided by Vertex42 and It’s Your Money, or even pen and paper.
Record Your Income
Start by determining how much income you receive each month. Total all reliable income sources: wages from a job, alimony, child support, etc. Note that word reliable. If you receive money from freelance work or hobbies, but not on a regular basis, don’t include that money as income in your budget. Your budget should be a document you can rely on.
Calculate Your Expenses
Some of your monthly expenses are fixed, like mortgage payments, property taxes, alimony. Others may vary, like electricity, water, and groceries. List all your fixed expenses and how much each costs.
For variable expenses, write down the maximum amount you plan to spend in that category or the expected amount of your bill. For example, you may plan to spend $500 on groceries and $150 on fuel.
Use previous data from your bank and credit card statements to help you identify how much you typically spend each month. Reviewing past spending can also help uncover spending categories you might have overlooked.
Calculate Your Net Income
Net income is the amount you have left after paying all your bills. You want this number to be positive so you can put it toward paying off debt, saving, or other financial goals. Calculate your net income by subtracting expenses from your monthly income. Write down the number, even if it’s negative.
Adjust Your Expenses
If your net income is negative, it means you’ve planned to spend more than your income. You’ll need to correct that. Otherwise, you may have to rely on your credit cards, borrow money, or overdraft your account to get through the month.
Variable expenses can usually be adjusted more easily, such as dining out, hobbies, and entertainment. Even some fixed expenses can be modified, like reducing your cable or phone bill, canceling your gym membership, or skipping a vacation this year.
Evaluate your spending using a “needs versus wants” analysis. Cut or eliminate spending in those areas where you want to so you have more room for things you “need” to spend money on.
Track Your Spending
Throughout the month, track your actual spending compared to what you had planned to spend. If you go over budget, this step will help you learn more about where you spent too much. In the future, you can be more cautious about overspending in that area. Or you may need to adjust your budget to account for the extra spending. If you increase your budget in one area, decrease it in another so that your overall budget remains balanced.
Frequently Asked Questions (New for 2023)
How do you plan expenditures using the 50/20/30 rule?
With the 50/30/20 budget, 50% of your income is allocated to necessary costs, 30% to wants, and 20% to financial goals. Financial goals include saving for retirement or college and/or paying down debt.
How to live on a budget?
To live on a budget, you’ll need to regularly track your spending and compare it to your budget categories. The more frequently you meet your budget, the better, especially when you’re just starting out. Over time, you’ll become better at accurately predicting how much you need to allocate to each category.
Source: https://www.thebalancemoney.com/creating-a-household-budget-960839
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