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Getting your Trinity Audio player ready...
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STEP 1: Create a List of Expenses
a. The bare necessities. When creating a personal budget, it is best to begin by making a list of necessities that you have to pay each month. This includes: mortgage or rent, utilities, public transportation, medical expenses and groceries. Calculate how much you’re paying over 12 months for each, and get a cost average per month.
b. Next on the personal expense ladder. This list includes things that give you security and peace of mind: health insurance, life insurance, auto insurance, and home or rent insurance.
c. If you must. This list will include things that most people want, but don’t need. If you’re expenses exceed your income, this is where you have to cut back: internet access, cable television, phone, and auto lease or loan.
Step 2: Create a List of Sources of Income
The key thing here is to make sure that you list only the income you’re taking home. Don’t include things like tax returns or bonuses, if you don’t have to. If you’re are self employed, consider averaging what you make over the year and starting out with extra savings for those lean months.
Step 3: Prioritize and Re-balance
The amazing thing about having a personal budget is that it opens your eyes to where you can cut back in some areas to free up more cash. Figure out what you need and what you don’t and prioritize. For instance, Do you really need up to 100 cable TV channels?
Step 4: Evaluate your Net Income or Loss
Take your income and subtract your expenses. If you have a positive number, you are doing better than many. Take your extra money and put it into a IRA or invest the rest in mutual funds or personal investment account.
