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Basics of Budgeting

Only 39 percent of Americans have and follow a budget, according to the National Foundation for Credit Counseling. Having a plan for your money can help you pay your bills on time, stay out of debt and save for the future.

Here is a step by step guide to creating a monthly budget. Download this worksheet as a guide to help you.

1. Determine your monthly net income. This amount is how much you make after taxes and will be the total amount of money you work with in your budget. Also include any additional income such as college scholarships if you are a student.

2. Next, estimate how much you’ll spend each month on expenses. In general, there are two types of expenses. Fixed expenses stay the same each month like rent and car insurance. These are bills that you expect to see from month to month. Flexible expenses change each month. For example, you eat different amounts of food and use a different amount of gas from month to month.

a. We often don't realize how much we spend, whether it's grabbing a coffee every morning on our way to work or eating out a few times a week. To help determine where your money is going, maintain a spending log of everything you spend money on for a week, even if it's as little as a 75 cent drink from the vending machine. Next, categorize your expenses into things you need (i.e. rent, insurance) versus things you want (i.e. vacations, entertainment). Be honest about your wants. For example, while you need to eat, you don't have to eat out, which is generally more expensive than cooking at home. If your expenses exceed your income, reevaluate where your money is going and cut back on the items you want, but don't necessarily need.
*Use this spending log worksheet to track your expenses.
b. As you estimate your expenses, it can also be a good idea to write the time of month that your fixed expenses are due. This way, you are less likely to miss a payment.

3. Don’t forget to save! An important step in creating a budget and managing your finances is to set aside money for savings. In general, try to save about 10 percent of your budget each month.

4. You can also invest in your future by contributing to a retirement plan or investing your money. Consider your long term goals and risk tolerance level when figuring out what percent of your budget to allocate to investing.

Congratulations! You now have a plan for your money. You know how much you make and where it’s going.

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It’s not enough to just create a budget; you have to actually follow through with it each month. Create a master copy of your planned budget then create a copy that lists all of your expenses with blanks for you to fill in the dollar amount. Throughout the month, list how much you actually spend on each item.

Once the month is over, go back and analyze your actual budget comparing it to the planned budget. Did you pay all of your fixed expenses on time? Did you spend more or less on your flexible expenses? How much were you able to save and invest?

If you were over budget, look at your flexible expenses like food and entertainment and determine if there are areas you can cut back on. For example, make a point to eat out only once a week instead of two or three times.

Make budgeting a part of your monthly routine and help yourself pay your bills on time, stay out of debt and better manage your finances.

Related Information:

- Download sample budget worksheet

- Download spending log worksheet

- Practical Money Skills for Life: Budgeting

- Feed the Pig

- FTC's Money Matters

- Mint.com