“I desperately need your help to create a budget for my husband and I. Can you direct me to a simple easy budget worksheet where I can enter what we bring home and what we pay out and this will show me what I need to save or how to save?” – Anonymous
Setting up a budget is a must – so I’m glad you’re reaching out for help! It’s a matter of figuring out where you are, and where you want to be. You need to ask yourself how much you’re bringing in each month, how much goes out each month – and when you spend that money, where it’s going.
How much you’re bringing into your household each month should include your take home pay, and any other sources of income you might have. Do you run a small business on the side? Do you have rental properties? Do you sell old books on eBay? Add it all up. If it varies, come up with the average over the past year. That will let you know exactly what you’re working with.
Next, and probably most important – take the time to understand exactly what you’re spending money on. This is crucial to getting out of debt, but also will help you find money you can save for the future. You should look over your recent credit card statements to see what you spent your money on, and then track your spending for the next month. And when I say track your spending, I mean every time you take your wallet out – whether it’s for $2 or $50. Keep a small notebook in your purse where you can track everything from lunches to ATM fees. What you’re spending on might surprise you – and if it does, you know where you need to start making financial adjustments.
When it comes to making a budget, I think it should break down like this:
35% Housing — rent or mortgage, plus the cost of insurance, taxes, utilities and maintenance
15% Transportation — your car payment falls here (if you have one), but taxis, parking and insurance also do
15% Other Debt Repayment — credit card payments, student loan payments and any other debts you owe
10% Long term saving — putting money away as an emergency cushion, as well as the retirement account you should be contributing to (whether it’s at work or on your own)
25% Everything else — this is your life. Food, entertainment, clothes, cosmetics, travel and anything that doesn’t fit into the other categories.
Now, you can borrow from one category to another. Maybe you live in a small town, and don’t really pay for transportation all too often – but you have a large amount of student loan debt. You can use some of that money someone else might spend on the subway every morning to put towards that loan repayment. However, there’s one big rule of thumb – you can’t borrow from savings. So if after your fixed expenses, you find that your living expenses could be cut down – you know where to start to build that cushion. Clip coupons or take on a part-time job to balance it out, and put that extra money into a savings account with your bank. That way, you’ll get yourself on the right track to financial security.