Creating a personal budget is one of the best things you can do for yourself and your family. Until you know exactly where your money is going, you cannot truly take control of your finances. Understanding the various parts of the budget process helps you make the most of every penny you make.
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Your budget needs to incorporate all your income information, including the take-home pay for both yourself and your spouse. If you have additional income from freelancing, alimony or work-at-home projects, that income should be included as well. If your income varies from month to month, it is a good idea to use your average income in your monthly budget.
Essential spending includes things such as the rent or mortgage, as well as utility bills such as electricity, sewage service and trash collection. Food you buy at the grocery store also goes into the essential spending category, although restaurant meals and takeout service do not. Basically, anything you cannot live without goes in the essential spending category.
Discretionary spending includes all those things that make life more comfortable but are not required to keep you housed and clothed. You might think that premium cable services, pay-per-view movies and cell phone service are essential, but in reality those items all fall in the category of discretionary spending. If you are looking for ways to cut back on your spending, this area is a good place to start.
Projected vs. Actual
A good budget needs to compare your projected expenditures — what you expect to spend in the coming month — to what you actually spend. Comparing your projected costs to your actual expenditures allows you to assess your level of spending and look for ways to cut back. It is important to track your spending in each category in order to find — and plug — those leaks in your budget. For instance, if you find yourself spending more than expected on restaurant meals, you might want to beef up your grocery store trips and do more cooking at home.