A budget is a financial plan that shows where each dollar goes, whether it’s coming in or going out. It’s not designed to make you feel bad if there are expenses that don’t fit within your budget, but rather to expose areas where spending could be reduced and help you get closer to your goals.
Start by gathering all your documents that reflect your monthly income and expenses, including bank and credit card statements, paycheck stubs and benefits statements. Next, separate your expenses into fixed and variable categories. Fixed expenses are those that remain the same each month, such as your rent or mortgage payment, cell phone bill, car insurance and utility bills. Identify each expense and estimate the amount you spend each month on these items, using past credit card and bank statements as a guide.
Variable expenses are those that fluctuate each month, such as grocery spending, dining out, clothing purchases and gifts. Try to establish a minimum level of spending on these items that reflects your personal values. Then look for ways to reduce spending, such as cooking more meals at home or reducing your membership fees at the gym.
Don’t forget to include miscellaneous expenses, such as dry cleaning, cosmetics and toiletries, laundry supplies and pet food. Also remember to account for one-time expenses, which are those that don’t recur, such as purchasing equipment or facilities, hiring consultants and handling a security breach. Also consider a savings category for any leftover money at the end of each month.