Creating a Budget

While creating a budget probably isn't high on your list of top-ten favorite pastimes, budgets are definitely a necessity if you want to take control of your financial future. The key to successful budgeting seems deceptively simple – spend less than you earn. Making a realistic budget for yourself, though, is a bit more demanding and complex. The good news is that a successful budget will help you reach your financial goals.

Print out our Cash Flow Worksheet and follow the steps outlined below:

1. Evaluate your spending
A cash flow analysis will show you how you spend money on a daily and monthly basis. To determine your cash flow, you should:

• Track your spending for several weeks. Record every dime you spend – and on what it was spent. Don't just list withdrawals for cash – record what that cash was used for. Account for everything.
• Gather receipts. Organize the receipts for all of the expenses you've been tracking. Be sure to include your credit card bills and checkbook register for the last few months.
• Total your monthly income and expenses. Begin to add up all of your tracked expenses as well as your monthly income.

2. Create your budget
Your analysis will show you if you are spending more than you are earning and what expenses you may have to cut back on. Using your Cash Flow Worksheet, prepare an accurate account of your monthly income and expenses.

• List your pre-tax monthly income. This includes salary, investment income, etc.
• List and subtotal your monthly expenses – fixed and variable – in the following categories:
  • Combined taxes – your federal, state and Social Security taxes withheld every month, including any local taxes
  • Housing – your mortgage, rent, association dues, insurance, and other housing-expenses
  • Home care – cleaning, landscaping, repairs, utilities, etc.
  • Food – groceries, dinners out, and all other food expenses
  • Auto – monthly payments for your car loan or lease, insurance, maintenance, parking, gas, and other car-related expenses
  • Insurance – premiums for health, disability, life, and any other insurance policies. If you pay quarterly premiums, divide each by three to get a monthly figure
  • Education – any tuition you currently pay for your child or yourself, as well as any student loans or other educational expenses
  • Personal Care – clothing, toiletries, gym membership, entertainment, vacation, gifts, etc.
• Total and compare the income and expenses columns.
  • Positive cash flow. Do you have money left over? Then you're spending less than you make and are in good shape. You could apply the extra money to one of your credit cards or other debts. And if you still have money left over, consider increasing your savings.
  • Negative cash flow. If your expenses are more than your income, create a budget to cut back on your variable expenses. Remember, the key is to always spend less than you earn. If you can't find ways to cut expenses, then step back and evaluate what you currently view as "necessities". They may be luxuries in disguise that you can live without.