Budgeting 101: How to Balance Your Budget

Budgeting 101: How to Balance Your Budget

Everywhere you look, people talk about budgets. From the federal government, who runs a deficit almost every year in recent memory, to state budgets, school budgets, workplace department budgets, and more. You name it, it’s got a budget. The same should be true for you, whether you are single or planning for a household with multiple dependents. Budgeting can help you determine where all your money is going, plan ahead for future events and needs, and save for long-term goals such as retirement. Here are some basic rules for establishing and balancing your own home budget.

1. Find out where your money is going. Many people don’t even know this to begin with. The best way to do this is to start a log of all spending that takes place. Do this for a full month and then evaluate where your money is going. You might just be surprised. Use this log when determining how much you spend in utilities, food, gasoline, etc.

2. Make a list of all of your essentials: utility bills, food, rent/home payments, transportation costs (including insurance). This will be the foundation of your budget. Remember, these are the essentials. Things like cable TV and other entertainment are optional and will be considered later. Be sure to include monthly debt payments and an allowance for food and clothing.

3. Determine how much money you bring home each month. For some people on a salary, this will be easy, since it is the same every month, on the dot. For hourly wage workers, however, your wages can vary week to week based on how many hours you put in on the job. For this step, hourly workers should consider only the minimum amount of hours they are generally promised. For example, if you’re employed part-time and your employer says you will get at least 20 but no more than 36 hours a week, you should use the income from 20 hours a week as your baseline income. If you’re employed full-time and your employer says you will get a minimum of 32 but no more than 40 hours a week, then use the income based on a 32 hour work week. Some of you might be tempted to use overtime as an income source because you frequently get overtime. However, this is a mistake many people make, and when the overtime dries up, they find themselves extended too far and living beyond their means.

4. Now you can determine how much expendable income you have. All you need to do is take the number that you came up with in step three and subtract the total of all line items from step two. Now here’s the kicker: if the number you come up with is in the negative, then you need to cut some of the ‘extras’ out of your budget! If you’ve got fast food, entertainment, or other optional items on the list at this point, they’ve got to go. If your number still is in the red and you’ve eliminated everything except the true necessities, then it is time for you to make some career decision. You will either need to find a higher paying job, or you might even have to get a second job to make ends meet.

5. Once you get a number that is in the positive, this will be your expendable income each month. Now this doesn’t mean you should just go out and blow it. Far from it! You should take the time to figure out how much of this you can put back into savings.┬áThere are two types of savings that you should establish. One savings stash should be for rainy weather events such as car repairs, unexpected and uncovered medical bills, house repairs, etc. This will help you prepare for short-term goals. The second type of savings that you should contribute to each month is long-term savings. This can be as simple as a savings account, a CD, or an IRA or other type of retirement account. Many employers have a retirement 401(k) option and will match a percentage of your contributions to such an account. Consider all of your options and make the choice that best fits your budget and lifestyle.

6. Finally, once you’ve paid for all of your essentials and contributed to your savings, you have money to spend! This is where the money should come from for entertainment items such as cable TV, Internet services, dining out, and other optional spending. If this category ends up with no funds in it and you want some expendable cash, you know what you have to do!