How to Budget your Money
by: Morgan James
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Word Count: 1462
To make a budget, you will need to have two columns. You will want to put your expenses (credit)
on one side and your income (debit) on the other side. You will then begin to accurately estimate
how much money you will spend and earn during one month. If you feel that it is easier to work out
your expenditures one semester at a time (to include tuition, books, and other
one-time costs), you might consider that approach rather than a monthly
approach. See the sample mini-budget
below.
When you make a budget, be sure you
remember the expenses in all areas of your life. Here are some expenses to remember when you
make a budget: Housing Expenses (rent/mortgage, electricity, heating costs,
water, parking spot, water tank rental, etc); Major Payments (tuition, car
payments, personal line of credit, etc.); Necessities (groceries, car fuel, car
insurance/license, child care, public transportation, child support/alimony,
home insurance, groceries, medical expenses—prescriptions, dental, eyewear,
personal items—toilet paper, toothpaste); Emergency money (car repairs,
unexpected medical expenses, etc); Luxuries (cable/satellite/video rental,
internet, clothes, furnishings, newspapers, magazines, books, eating out) and
Other (charity, savings: RRSPs, 401ks etc.)
Your earnings side will probably
have fewer entries than your expenses side, but that’s normal. Your earnings include your paycheck(s),
scholarships, investment returns, etc.
Here are some hints for making your
budget: if you are unsure of how much something costs, then overestimate. On the other hand, underestimate your
earnings. Don’t bother writing down your
gross earnings (which is what you earn before taxes): write down your net
earnings, which is how much you can actually expect to deposit in the bank. Don’t include overtime work, because you
might not always earn your overtime money.
If you are budgeting for things that
happen less than monthly, average out the monthly costs. For instance: if you buy $500 of books for
school twice a year, that’s $1000/12 months which averages out to $84 a
month. (Notice how I rounded that figure
up from $83.33 to $84? That’s because
it’s an expense and it is important to round your expenses up and your earnings
down).
If you are budgeting for things that
happen more than once a month, for instance, your paycheck, then make sure that
you include the total for the month. If
you earn $400 every two weeks, then your monthly income would be $800.
Monthly Budget
Expenses
Earnings
Rent
$740
Paycheck
1
$1300
Car
$200
Paycheck
2
$300
Car
Insurance
$50
Gas
$60
Groceries
$80
Contents
Insurance
$30
Medical
$30
Utilities
$75
Parking
$20
Phone
$60
Cell
Phone
$30
Internet
$30
Cable TV
$25
Other
(Emergency)
$100
Total
$1530
$1600
The budget above is an example. It is fairly incomplete, because it does not
account for many of the items listed above.
Notice how this budget combined heating, electricity, and water costs
into one bill: Utilities. If your
products are bundled this way (such as perhaps phone and cell phone), then list
them on your budget this way. If your
products are separate (perhaps you pay your long distance bill separately than
your phone bill), then list them accurately and distinctly on your budget.
What does making a budget show
us? If the above hypothetical budget
were real, we would know that the person is making just a bit more than they
earn, which is a good thing. This budget
would help them assess their ability to perhaps invest or to put away in a
monthly savings plan. Before making any
major plans with your budget, it is important to see if it mirrors your real
life spending patterns. This means that
you need to save your receipts, and at the end of every month, go over your
statement and your receipts to establish if your estimated budget matches your
actual budget. The simplest way to do
this is to make a copy of your expenses column with a blank column next to
it. That way you can track your actual
expenses and see if they match what you predicted. If they don’t match, you need to reevaluate
your budget and your spending habits.
Why else is a budget useful? If your expenses are more than your income, a
budget can help you discover areas where you are spending too much money. You can use your budget to plan areas to save
in.
Go over your budget monthly, or at
least once every two months. Just
knowing where you stand financially will put you at an advantage. Tracking your spending will help you spend
wisely.
About the Author
Morgan James is the editor of The Guide to Loans : http://www.theguideto-loans.com/personal-loans/.
Morgan is an expert on loans, mortgages, and student loans. To learn more about how to wisely borrow money, check out The Guide to Loans.
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