To truly gain control of your finances, I feel that a budget is a must have. You have to be able to see what money is coming into your home and what money is going out. The instructions below detail how I created my budget.
The best way to start is with your checkbook register or your bank statements. Look at your last 2-3 months of records and see where you spent your money. If you purchase a lot with cash, keep your receipts for at least a month and account for those as well.
First make a list of all loan payments including your house payment, car payments, credit cards, and other debt you may have down the left side of a piece of paper or spreadsheet. Now add all of your basic necessities such as electric bill, water, telephone, cellular phone, prescriptions, groceries, gas, lunch, eating out, clothes, gifts, etc. Then go back through your bank statements or check register and make sure you that each check you wrote has a category. Now, list the months at the top of the page going across that you have reviewed. Fill in the amount for each month that you spent in that category. You may have to total several checks together to arrive at this figure. For example,
Categories--------------November--------December---------January
House pmt___________1000_________1000__________1000
Car pmt______________400__________400___________400
Electricity_____________300__________250__________430
Groceries______________856_________788___________545
Now take a few minutes to see where your money went. Did you realize how much you were spending on groceries or eating out? It is surprising to most people when you really put it down on paper.
You will not be able to make a perfect budget. It will take several months of working in the budget to fine tune it to what you can finally live with. But the exercise above does give you a starting point.
Stay tuned for my next post on Step 2 of Budgeting 101.
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