Developing A Budget


A budget measures your income (the money you make) against your expenses (the money you spend). Budgeting helps keep you from spending more money than you make. You can plan in advance how you spend and save, and you'll be motivated for achieving goals.

Living by a budget is like being on a diet. It takes willpower to resist spending money.

Steps to develop your budget.

1. Determine your net income. To calculate net income, first determine how often you get paid. Use a different net income equation depending on your pay schedule.

2. Determine your fixed and variable expenses. Fixed expenses (such as rent) stay the same every month. Variable expenses (such as groceries) change from month to month.

Fixed expenses include periodic bills (like car insurance) that come once a year or more.

To budget for variable monthly expenses, take the average of three months of variable bills (such as groceries).

3. Track and plan for large, periodic expenses. Don't forget to include large, occasional expenses like tuition and vacations in your budget. You never know when an emergency will happen. If you don't plan for emergencies and periodic expenses, you could be in trouble.

4. Compare Income to Expenses. The final category on your budget worksheet is indebtedness, which means how much money is spent to pay off debts or loans (such as credit card payments). When you add up all the expenses in this category, you have your total indebtedness.

5. Set Priorities, Goals and Limits. Once you know your priorities, what's most and least important, you can figure out how to spend your money. If taking a vacation once a year is a priority for you, adjust your spending in order to save money every month. Your priorities should fit into your budget, not work against it.

Living on a budget

Living by a budget is like being on a diet. It takes willpower to resist the temptation to spend money but becomes easier as it becomes a habit. Learn how to save money and spend money wisely, and you're on your way.

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