March 19, 2012: Creating a Monthly Budget

“Some couples go over their budgets very carefully every month. Others just go over them.”
-- Katherine Mansfield

Perhaps one thing you can do to improve your financial situation is to do what most people don’t: create a monthly budget. Let’s face it, budgets are about as popular as ants at a picnic. But they are critical to transforming the way you relate to money. When you put pencil to paper and list all the line items I’m going to suggest, you will at once be able to see your finances in a new, honest way – and in black and white!

It’s like going on a car trip to a new place. You get out your map to chart your course so you get to where you want to go, right? When you look at the map, you learn a lot about how the journey is going to be. Well, the same is true of a budget. It shows how much money you have coming in each month and how it flows out in expenses. Creating a monthly budget will help you understand how you prioritize your spending and perhaps help answer this question: Is your spending taking you where you want to go financially?

That’s what we’ll talk about in the next issue – setting financial goals.

Let’s do budget basics first: Here’s a painless way, adapted from articles on about.com, to approach what most consider a daunting task!

1. Start by gathering up every financial statement and bill to help you create a realistic monthly budget.
    
2. On the top of a blank page write BUDGET, and under that write After-Tax Monthly Income and list all the sources and amounts of income you get each month. This includes hourly pay/salary, any income you get if you’re self employed or have a part-time job, alimony and/or child support, dividend checks, and so forth.
    
3. Following the Monthly Income section is the second section called Monthly Expenses. This list should include mortgage payments or rent, groceries, car payments/public transportation costs, insurance, child care, cable/internet service, water/sewer/trash pickup, phone service, gasoline, credit card payments, entertainment, laundry/dry cleaning, school/college expenses or savings, and so on.
    
4. Total monthly income and expenses. Then subtract expenses from income.

If you have a plus number – more income than expenses – then celebrate. It will then be time to decide where you want to put that excess. Use it to pay off credit card debt more quickly? Put into a retirement account?

If instead you have more expenses than income, you will obviously need to identify those areas where you can cut expenses. It might not be easy, but it will be worth it.

Every good wish,
Mary Staton