1. Gather All Your Financial Documents.
Bank statements, pay stubs, retirement accounts, utility bills, credit card bills, etc. These will all be necessary to track your money coming in and going out.
2. Record Your Total Income As A Monthly Amount.
If you are a salaried employee, this is easy. If your hours vary or you work on a commission basis, do your best to average out your income based on the last 6-12 months. Always err on the low side when estimating.
3. List All Of Your Expected Expenses You Plan To Have In A Month.
Most of us will have a general idea of what our monthly expenses will be, but sometimes unexpected expenses will pop up, especially if you own a car or a home.
4. Break Expenses Into Two Categories; Fixed And Variable.
Fixed expenses will be those that are consistent month to month. This could be a mortgage payment, student loan, any utility that is on budget billing, etc. Variable will be those lifestyle expenses that change from month to month. Credit cards, grocery and food expenses, entertainment or travel expenses, etc.
5. Total It Up.
Add up your monthly income and monthly expenses. If your income exceeds expenses, put excess money towards other things like saving, paying down debt, and/or starting an emergency fund. If your expenses are higher than your income, adjust your variable expenses first to cut it down.
Go over your budget on a regular basis to make sure you are staying on track. After three months, review your expenses for each month. Pick the month where you did the best staying within your budget and try to emulate the same spending for another three months. If you are trying to save for a large purchase, put most of the excess income into savings. If you are trying to improve your credit, put it towards paying down your debts first.
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