Monday, December 22, 2008

5 Easy Steps for Creating a Budget

The best way to get your finances under control and to keep your credit looking pristine is to create and to follow a budget. Yet, many people struggle when it comes time to develop a budget and, therefore, they never actually create one they can use. By following these five simple steps, however, you can easily develop a budget that will help you stay on top of your finances and avoid getting into financial difficulties.

Step #1: Determine Your Income

Determining your income is easier for some people than it is for others. While some people earn a regular salary each week or work a consistent number of hours each week, others work irregular hours and cannot be certain how much they will earn week from week. If you fall in the latter category, you will need to determine a monthly average in order to get an idea of how much money you have to work with each month.

Step #2: List Your Expenses

Now that you know how much money is coming in each month, you need to calculate how much is going out. Write down all of your monthly expenses so you can get an idea of how much you spend each month. Expenses that should be listed include:

• Auto Insurance Payments
• Car Loan Payments
• College Savings
• Credit Card Payments
• Dry Cleaning
• Entertainment
• Groceries
• Internet Expenses
• Mortgage Loan Payments
• Refuse Pick Up
• Retirement
• Telephone Expenses
• Utility Payments

Be sure to gather together all of your regular bills and expenses so you can get a true idea of how much money is going out each month.

Step #3: Categorize Your Expenses

With your expenses listed, you should now categorize them according to which ones are fixed expenses and which ones are variable. Your fixed expenses are those that you have to pay each month, while variable expenses are those that you may be able to scale back on if necessary.

Step #4: Compare Your Income to Your Expenses

With the help of a calculator, you can now add up your monthly expenses and expenditures. If you are making more money than you are spending, creating a budget will be pretty simple. If you are spending more than you are earning, however, you will need to make some adjustments in order to make certain your bills are covered.

Step #5: Adjust Your Expenses

If you are spending more than you are earning, it is time to look at your variable expenses and start trimming some fat. Look for areas where you can cut back and then create a monthly budget for that particular type of expense. For example, if you are spending $150 per month on eating out and you are $100 over budget, you might scale this expense down to $50 per month or you may bring it down to $100 per month and then cut the other $50 somewhere else.

In order to make certain your budget is still working for you, it is important to revisit it every few months or every time there is a change in your income or expenses. That way, you can be sure to stretch your dollars as far as possible!

About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for . For more info and to order your credit report with FREE credit score please visit

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