Budgeting for Beginners

Have you ever wondered where your money goes? Sometimes it seems like you have just deposited your pay and in the blink of an eye the majority of it has disappeared. By making a personal budget you can finally take note of where your money is being spent. Here are some basics about creating a budget.

What is a Budget?

Basically a budget is a breakdown of all of the money that you have coming in as well as the total amount that is being spent and where you are spending it. Most people fear that by forming a personal budget they will be forced to cut out all of the fun activities that they spend money on such as dining out, movies, etc. This is not necessarily the case, but by not creating a budget you will never know where you need to make some cut backs.

Calculating your Total Income

Calculating your total income is a lot easier than you may think. The next time that you are given a pay stub take note of how much money you made after taxes and calculate the total for the month. If you are married add your spouse’s income to your own. After you have done this add on other sources of income that you have such as the interest generated from savings accounts, dividends and any side businesses that you have.

Tracking your Expenses

In order to pinpoint where your money is being spent it is a good idea to start with calculating all of your regular fixed payments for the month. These might include rent or mortgage payments, car payments, insurance for both an automobile and home, taxes and any debt that you might have. Once this is done it is time to investigate the other areas where you are spending your hard earned cash. Take a look at some of your financial records like a credit card statement, your cheque book and your bank account statement. Make a note of how much you spent on utilities, groceries, eating out, entertainment, for the month.

Creating your Personal Budget

Now that you have collected all of the required financial information, add up the totals for your monthly income and monthly expenses. Once you have these figures subtract your expenses from your income. If you are left with a positive figure this means that you are not spending more than you make; if the figure is in the negatives you are living above your means.

Even if you are spending less than you make it is a good idea to analyze where your money is going and make some slight adjustments. Just by bringing your lunch, going to the movies during a matinee rather than paying the full admission price and perhaps scaling back on the amount of channels that you have in your cable television plan you could save a significant amount of money. This money can then be used to either pay down a debt or invest in a savings plan for your future.