9 Quick and Easy Steps To Start a Budget

If you are in debt or living on a fixed income, the odds are that you have thought about starting a budget.  You may have made excuses about why you haven’t started a budget.  The task might seem intimidating or time consuming.  But follow these guidelines and it you can establish a working budget in a few evening hours.

1. Gather your bills and paystubs.  Find your recurring household bills, from utilities to rent to credit card payments, as well as your paystubs – whether they be Social Security statements, unemployment records, or wage stubs.
2. Add up your regular payments. Make a list of each company or lender you are making payments to, with the payment you are making.  For variable bills, like utilities or heat expenses, use the bills that have higher costs over the past year.  When budgeting, you do not want to leave yourself in the lurch by expecting to pay far less than your actual bill.
3. Estimate your variable expenses.  Staples such as groceries and gas may be variable, but calculate how much you spend each month in these categories, and budget those expenses.
4. Add up your regular income. Be honest. Calculate the earnings from your household.  If you or your partner have per diem or irregular hours, use a lower number or the guaranteed number of hours to calculate your income.  Do not rely on income that is not guaranteed, such as tax returns or future potential work.  Use your current income.  You need to be honest with yourself.
5. Subtract your payments from your income.  Subtract your regular and estimated variable expenses from your monthly income.  The number that you get is your discretionary spending amount, or the amount that your income exceeds your bills.  If this number is negative, you are spending more than you are making and need to make cuts.  If you divide this number by 31, you will have an estimate of a daily spending limit for things like morning coffee or entertainment.
6. Make cuts. Whether or not your income exceeds your debts, identify those expenses where you make cuts.  Unless you are on secure financial footing or rely on it for your career, you may not need premium channels on cable or unlimited cell phone plans.  Be reasonable, identify the areas where you have bills for services you do not need, and cancel those services.  This will free up more money to pay other bills or to save.
7. Pay down your debts. If you have extra income, open a savings account or pay down your debts.  By making payments on things like credit cards that are greater than the minimum monthly payment, you can pay down your debt quicker and free up even more money for your budget.
8. Stick with it. Don’t splurge. Once you have your budget, stick with it. It is easy to splurge on things you don’t need (that means things you really need) when you feel like you have more money than before.  But by increasing your savings and paying down your debts, you’ll have that money if a crisis like unemployment, wage cuts, or emergency health expenses should strike.
9. Reassess periodically. If your circumstances change greatly, it may be best to establish a new budget immediately.  But even if things seem to remain the same, it may be best to check your budget ever few months, to make sure that small changes haven’t added up or to see if there may be additional places you can make cuts.