How to Make a Budget

If you are ready to implement a household budget, follow these simple and easy tips on how to make a budget:

1. Create a Personal Budget Worksheet- To begin, create 2 lists of information; your personal income and your personal expenses. Even if there are multiple incomes within your home, it's a good idea to understand and know what your personal budget habits are before you look at the household budget.
   
   Gather three months worth of income statements as well as bank statements to compile this information. Three months is typically a good number to look at because one quarter of the year can show a pattern of income and expenses.
   
   Be as detailed as possible and itemize your expenses into categories like house payment, car payment, car insurance, telephone bill, etc.
2. Create a Household Budget Worksheet- Now that you have created personal budget worksheets, you will need to use this information to determine what your overall household budget currently looks like.
   
   Look at any trends that you see, both positive and negative to look for ways to cut expenses. For instance, are you spending too much money shopping at a certain store? Then reduce your shopping time there. This information is useful as you learn how to make a budget for your family's needs.

3. Determine Your Current Level of Discretionary Income- Your discretionary income is the amount of money left over at the end of each month; your income minus expenses. If your discretionary income is negative, it is likely that you are getting further into debt each month and it's time for you to take action. If your discretionary income is positive, super! These are the available funds for repaying consumer debts or building a savings.
   

4. Modify Your Household Budget- Now that you have a pretty good grasp of what your household budget looks like, it is time to make necessary changes based on your family's needs. You have two categories of expenses, fixed and variable.

   Fixed expenses are those that will not change on a monthly basis, such as your mortgage payment, rent, student loan debt, and car payments.

   Variable expenses change from month to month and often include items such as utilities, entertainment, dining out, groceries, travel and clothing.

   Review your list of variable expenses to determine which could be reduced or eliminated. While it is not often fun to reduce or eliminate variable expenses, it is an important step to take in order to build personal wealth for your financial future.

5. Track Your Progress- In order to manage a successful household budget, you need to track your progress on an ongoing basis. Quicken Deluxe 2014 [Download] is one of the most popular tools to help you track progress. Track your expenses monthly to see which areas you are making progress in and which areas require attention.

   If you don't want to use Quicken, then use a binder with paper and write out your budget.

   By focusing on a monthly budget, you will be well positioned to not only follow it, but to begin building personal wealth.

Now that you have learned how to make a budget, take the time to organize your finances. Create your own household budget and find out what changes you can make in your daily spending habits and keep track of your ongoing progress. When you do, you will be setting yourself up for financial success!

back to top of page

Return from How to Make a Budget to Penny Pincher

Return to Life Organize It