Tips for Creating a Monthly Budget
Quicken Deluxe 2011
Creating a monthly budget for yourself or your business may not sound like a lot of fun, but it is really important for keeping your finances in order.
Before you begin to make a new budget, keep in mind that to be successful you must provide as much information (details) as possible. The goal is to show how much money is coming in and where it’s coming from and how much is going out.
Here are some tips to get you started:
Find every financial statement that you have and put it all together. The list should include bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense.
Make a record of all your income. If your income is in the form of a regular paycheck where taxes are automatically deducted then record the net income, or take home pay. If you are self-employed or have other outside sources of income, make sure to record these as well. Whatever the total is, this is your monthly income.
Make a list of monthly expenses. Take some time to write down a list of all of your expenses over the course of a month. This list must include the following: mortgage payment, groceries, car payments, auto insurance, dry cleaning, retirement or college savings, basically everything you spend money on.
If you don’t know the exact amounts – for example – groceries, then make an estimate of how much you think you spend per month. Read the next tip for more clarification.
Break your expenses into two different categories: variable and fixed. Variable expenses would be items such as groceries, dry cleaning, pet expenditures, entertainment, gasoline, eating out, gifts, etc… This is an important category for when you will need to make adjustments to your budget later. This is where expense management software comes in handy.
Fixed expenses are those that stay relatively the same each month, such as mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on. These expenses for the most part are essential yet not likely to change in the budget.
Total up your monthly income and monthly expenses. If your total result for income is higher than your total result for expenses, you are doing well. This means you can choose to prioritize the excess income to areas within your budget, such as retirement savings or paying more on credit cards to get rid of debt faster. If your expenses exceed your income, this is where some changes will have to happen.
Making adjustments to your expenses. The ultimate goal would be that your column of expenses and your column of income equal each other. This shows that all of your income is accounted for and budgeted for a specific area of expense.
If you are in a situation where expenses are higher than income, take a look at your variable expenses to find things to cut. Do you need to go out an eat so often? Is it vital to get so many clothes dry cleaned? Even making small adjustments will in time, help you to balance your budget.
Take a look at your budget monthly. Reviewing your budget on a regular basis will help you to stay on track. After the first month of creating your budget, take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will further help you in understanding where you are doing well, and where you need to make some adjustments. There’s always room for improvement!
Buy a good cash flow forecasting software program to help you keep organized. It’s worth the investment!