Money is a tool that enables you to reach your goals in life, but until you know where your money goes, you can’t make conscious decisions about how to use this tool effectively. A budget shows you exactly where your money goes and provides a spending plan that lets you save for the things that are important to you: a new house, a new car, a comfortable retirement, a college education, travel, or whatever your particular goals and dreams happen to be.
The first steps to creating a budget are:
1. Determining your net monthly (take-home) pay and monthly fixed expenses (i.e. Housing, Car Payments, Insurance, etc.)
2. Determine your monthly variable and discretionary expenses (i.e. Food, Transportation, Utilities, Personal, etc.)
How do I determine my monthly net income and expenses?
1. Review your monthly bank statements to calculate net monthly income and total fixed expenses
2. Review variable expenses such as utilities, cellular phone bills, transportation, etc. can be determined by averaging 3 months of statements.
3. Discretionary/Personal Expenses can be estimated by closely tracking every penny for a week or two. Using the Envelope system and retaining receipts can help with tracking impulse spending.
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