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Personal Budgeting

How to Create a Budget

With over 7 million Americans out of work and consumer debt reaching crushing highs, many families are finding that that the old common sense about budgets isn't so common anymore. American consumers are addicted to credit, and many households are realizing they have a problem.

Planning a budget has an "eat your vegetables" feeling to it for most of us; we know it's good, but we're afraid of the discomfort that comes from self-discipline. But when you consider how liberating a budget can be, the rewards can easily outweigh any effort or inconvenience.

Begin by making an assessment of your income. This is easy for most, but if your income varies from month to month, it's best to at least establish a conservative average. Be careful to allow for plenty of room for a bad month so that everything can be covered.

This brings us to the next, and perhaps most painful step in planning a budget. Determine your expenses for the month. This is where the real work begins. This is where your real values are reflected back at you in cold hard numbers.

Start with the expenses that never change from month to month, and which you consider essential to day-to-day life. This can include things like utility costs, rent or mortgage payments, gasoline, etc. Then move on to the things that are less essential, but no less valuable to you.

Now you have two figures in front of you: your expenses and your income.

Which number is bigger?

If your expenses are higher, you need to increase your income or cut expenses. Those are your choices, because if you think of your household as a business, you're losing money and are on your way out of business. There's no reason you can't turn a profit.

If your income is bigger than what you honestly spend, you're in a great position for the future. The key is to stick to your budget, whatever it is, or else your extra income is likely to dissappear on frivolous extras. You can use it to pay down debt, or save and invest for the future. Deciding what to do with the extra is the best part. What do you want to do with it? Give to charity. Save for a rainy day. Start day trading with forex or the stock market. Maybe some of everything. It's your money.

Your future really depends on how well your budget is executed. Don't just plan the budget, make a plan for how you'll stick to it.

One approach is to print your own check registers. These can easily be specialized with office computer programs to show your budget items. This way, whenever you spend any amount of money you can see how much is left in the budget for the particular item. The information you need is readily at hand. This same system can be applied with home finance programs like Quicken or Microsoft money.