How to Make a Budget

It is important to learn how to make a budget -- your financial success depends on it. Get into the habit of making a family budget every month and sticking to it. If you're married, teamwork is key. Be patient as you transition to life on a budget, because it takes time to make it work. In fact, the first couple months are the hardest, as you learn what you're currently spending money on and how to bridge any income vs. expenses gaps. Here's how to make a budget.

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Make a Budget

Create a list of your current expenses, starting with your set bills. Include unsecured debt payments, mortgages, utilities, phone, cable, and insurance policies. Be as detailed as possible at this point, even splitting food into "grocery" and "lunch food" categories to really get an idea of where your money is going. If you are unsure, make a best-guess estimate. Also include money for savings, if you do not have a good emergency fund established. Start with $200/ month in a seperate savings account if possible.

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Next, tally and record your monthly income. If it varies, you'll need to use an average, basing it on the past six months. Or, use your lowest income projection to be on the safe side. Write down your total monthly income and compare it to the expenses list you compiled in step one.

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Adjust your budget to reflect the difference between what you earn and what you spend. If your expenses total up to more than your monthly income, don't panic. You're not alone, and with a good budget, you can turn around your finances. If you spend less than what you earn on a monthly basis, you are unique. Congratulations! You'll need to allot the "extra" money to savings or investing, depending on your financial goals.

Trim the excess if you need to tighten your budget, until the amount of expenses equals your income. Start with the extras like recreation, entertainment, snacks, magazines, eating out, non-work-related travel, bulky call phone and cable plans, unused gym memberships, and other frills.

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Plan a weekly meeting to discuss finances with your spouse. You should learn how to make a budget together and communicate each week about necessary changes, and the challenges you each face. Working together on money may be hard at first if you have different opinions and habits, but over time, the effort will pay off.

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After you make a budget, you may find it easier to stick with your spending plan if you use a cash envelope system for daily expenses. Make envelopes labeled "food"; "household"; "personal" and fill them with the budgeted amount each week. When the money is spent, there's no more for that category until the next week. And no using your debit card to go over budget!