Sometimes, when a person decides to get their “financial house” in order, they are overwhelmed. They don’t know where to start, they panic, and they mess up. So, in order to help our readers with this sometimes monumental task, I have decided to do a series on making a good budget.
Making a “good budget” is different than simply making a “budget”. Anyone can write down their income and expenses, but a good budget is more than that. A good budget starts off by the person making a list of financial goals. Do you want to save more? Pay down debt (mortgage, credit cards, student loans…)? Save for retirement, vacations or Christmas/holidays? Give more to charity? Once you have decided which of these apply to you, write them down.
Next, you need to figure out where you are. Make a list of financial responsibilities over as long a term as possible, in as much detail as possible, including:
- take home pay
- weekly bills (groceries, gasoline/bus fare etc.)
- monthly bills (electric, water, cable, phone etc.)
- annual bills (tax prep, property taxes)
- money spent going out (movies, dinner, drinks etc.)
- money spent on gifts (birthdays etc.)
- estimated medical expenses (including dental)
- child care expenses (babysitter, day care etc.)
- car payments (don’t forget car insurance!)
- house payments (don’t forget mortgage insurance!)
- minimum payments due on credit cards
- alimony / child support
- personal spending money
- clothing expenses (for everyone in the household)
Don’t forget that the more precise you are, the better your budget will be when it is finished. This part of the process will be time consuming, and you should try not to guess at an amount unless you are left no other option. You should be able to locate this information by going through previous bills and receipts. As an example, you should take all of your electric bills for the previous year (if you don’t have these, use what you do have), add them up and divide by the number of bills…this will give you your average monthly electric bill. Now, do the same for any other weekly and monthly bills where you need to know the average spent in that particular time frame.
At this point, you should have a good idea of your monetary needs for a weekly/monthly basis.
Next Wednesday, we will discuss what to do with this information from this point. Good luck with your information gathering!
