How to Make a Budget

Creating a budget is the first and most important step to good personal financial planning. Budgeting helps you track where your money comes from, and most importantly, where it's going. In a few easy steps, you can tailor a budget that gives you control over your money and your future.

You can purchase budgeting software if you prefer, but the existing spreadsheet software already available on your computer will produce a good result, so there's no need to incur extra expense. You can also use one of the many budget worksheets available for you to download free on the internet. In a pinch, use a notebook and pencil.

For personal and household budgets, working with a monthly time period is usually best, as most bills come due monthly.

Ready to start? Here we go!

1.GATHER DOCUMENTATION

*Income - Collect paystubs, W2s, bank statements and documentation pertaining to any other source of income such as loan proceeds or child support. If your income regularly includes commissions or other variables, taking an average over at least three months is best.

*Expenses
Time to gather up the bills. Rent or mortgage and car payments will remain the same from month to month but for bills that vary depending on usage, such as utilities, take an average. 12 months is optimal, but a three month average should yield a workable number.

2. CREATE YOUR BUDGET

Now it's time to plug in the numbers. When listing income, add all sources of income together for your monthly total. It is usually best to use net income, since this is the amount you actually have to spend. List expenses separately by category. The more specific the category, the easier it will be to track each expense. For instance, don't list "Utilities", break it down into phone, electric, etc.

Here is a list of some common categories of expenses. You should add items or delete items on this list as necessary to reflect your personal expenses.

* Rent or Mortgage payments
* Food - don't forget to include eating out and school lunches as well as groceries in this category
* Utilities - Heat, Phone, Electricity, Cable or Satellite TV, Internet service provider, Water and Sewer bills
* Transportation - car payments, fuel, average maintenance costs and insurance premiums
* Clothing - include costs of cleaning as well as purchase of new and replacement items
* Medical - include any insurance premiums that you pay directly, direct payments for medical services, co-pays, prescription drugs, eye exams and eyeglasses or contact lenses
* Entertainment - include expenses like movie tickets, going out with friends or dating
* Miscellaneous - include regular expenses that don't fit into other categories - track all debit card and cash transactions for at least a week for items you purchase at coffee shops and convenience stores, etc.
* Savings

BENEFITS OF A BUDGET
One of the benefits of using a budget is that you may be able to identify unnecessary expenses or adjust some services to reduce bills. Scrutinize each bill for ways to save. Simply canceling premium channels or changing to basic service can pare down that cable bill. Money saved in one category can be transferred to another, such as savings.

Increasing your savings is an important goal of budgeting. Everyone should have three months of expenses saved for emergencies such as job loss or serious illness. After making your budget you will know your savings target for that emergency fund.