Building a Better Budget

Many people cringe at the thought of creating a budget.   However, a good budget is the foundation for a solid financial future.  No one wants to worry about finding money to pay the bills.  That’s where a budget can help you can organized.

Before you can even think of drafting a budget, you need to know what’s going in and out.  The easiest way to do this is to simply write it down.  Create a document or a spreadsheet and draw a big line down the middle.  Label one column as “Expenses” and the other column as “Income.”

Underneath “Expenses”, list the following items, along with their monthly cost.

First, what do you owe other people?  These items are mandatory because you cannot easily get rid of them.  Your list might include:

  • rent or mortgage payments
  • credit card payments
  • student loan payments
  • car payments

Next, what are your needs?  Needs are required, just like mandatory expenses, but usually you have a bit more flexibility with your needs.  These are typically bills and expenses such as:

  • food and grocery
  • phone, cable and internet
  • transit or gas

Once you have identified where your money must go, you can look at where you would like your money to go.  It’s important to allocate money towards:

  • entertainment and leisure
  • savings and retirement
  • emergencies

Then, underneath the “Income” column, list all your sources of income along with the dollar amount per month. 

Finally, add up the total on each side of the sheet.  If your expenses are less than your income, then you’re doing great!  Take this opportunity to identify areas where you can trim your budget and consider allocating some of the leftover money towards increased savings, retirement, and emergencies.

But if your expenses are greater than your income, you need to make changes.  By seeing what you actually need each month, you can identify weak points in your finances and from there, develop a budget.  You might consider lowering some of your mandatory expenses by moving to a cheaper apartment, consolidating your debt, or seeking a better interest rate.  Perhaps you can trim your needs by cancelling television or internet, cutting back on your cell phone usage, or making more meals at home. 

Do not be discouraged if at first you find that your expenses outnumber your income.  Instead, use it as an opportunity to slowly tweak your finances and improve over time.

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