Six Easy Steps for Creating a Budget

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Posted on 05/15/2008

For many of us, budgeting ranks right up there with filing income taxes and going to the dentist. But the process doesn't have to be difficult or painful. Here are six easy steps to follow that will make creating a budget simple.

1. Figure out what you have coming in. How much money do you make? That should be a pretty simple question to answer. Gather up a few of your pay stubs and figure out your average monthly income.

2. Determine where your money is going. List your bills and how much you pay out in fixed expenses each month. Include only the necessities like electricity, rent, and your car payment.

3. Budget for variable expenses. This money goes towards things like food, gas, clothing and entertainment. These are items that don't have a set amount each month.

4. Put your 5th grade math skills to work. Now that you've tallied up your income and expenses, subtract what you make from what you spend. If you come out with a positive number you're in good shape. If the number is negative you have two options. Get another part-time job or cut back on your spending.

5. Allocate your resources. Money is a valuable resource and that's how it should be treated. If you're going to get serious about budgeting, figure out how much you can reasonably allocate for variable expenses like entertainment and food. Withdraw that amount of cash each month, put it in an envelope and label it. For instance, whatever is in the "food" envelope at the start of the month is all you get at the grocery store or at restaurants. Once it's spent, it's gone. The envelope method makes it easy to keep track of what you've spent and what you've got left. You might find it harder to fork over cash when you know you've got a limited amount. If you prefer online methods, check out free budgeting sites like Mint and Buxfer. Microsoft Office also has plenty of free budgeting templates.

6. Stick to it. Revisit your budget on a monthly basis. Make sure you're doing well and pinpoint areas that need improvement. See, that wasn't so bad, was it?

By Alison Storm

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