If this is the first time that you are on your own or if you are starting a family or if you have never done a budget before, working out a budget might intimidate you. The thing is that a budget can be very straightforward.

If you set up your budget one step at a time, you will not be overwhelmed by it. The thing is not to go through all the steps at once. It is best to set aside some time, about an hour or one and a half hours, to follow this guide to set up your budget.

The first step is to gather your information!

Gather all of your bills, your bank and credit card statements, your pay stubs, your checkbook, your grocery receipts and all other receipts. Start by getting everything sorted and have it all in one place. Don’t worry about sorting it now or making any sense of it.  Just get those little pieces of paper altogether in one place.

See what’s coming in!

Get a writing pad and on it you will list your total income. You will be listing all of your income which should include income from work, income from a part time job, income from stocks or dividends.  Basically, you will be listing all of your income and the income would be for an average month. The income should be your gross income, that is the income that you earn before all the deductions are made. If your income was sporadic, try to do your best to give your best monthly average.

Next, you want to see what you are spending your money on!

Next, list your expenses.  Obviously, you expenses will be a long list.  You will be putting your expenses into two columns for a typical month:  Fixed and Discretionary Expenses. Fixed expenses include your payroll deductions like your taxes, etcetera.  It also includes your mortgage or your rent, your property taxes, your home and auto insurance, your utility and heating costs, your credit card payments and your savings. What are discretionary expenses?  Discretionary expenses are for things like entertainment, groceries, gas, dining out, hair grooming and memberships. Listing you expenses this way will clearly show you how you are spending your money.

It is time to rethink your spending habits!

First you will be comparing your income to your expenses. Which expense suck up a large chunk of your income?  Are you spending more than you earn? Is your discretionary spending enormous?  If your answer is “yes” to any or all of these questions, you must start to write down what you are spending your money on. If you do this, you will surely find out that money is flying out of your hands for things like snacks, lunches and even at the drugstore.  For quite a while, I would go to the drugstore every day because it was right next door to my workplace and every time I went there I spent money on things I really did not need. If you are spending more than you earn, you either have to spend less or make more money. You need to really take a good look at your expenses and start cutting down that list to a more realistic budget so that you are not spending more than you are making.  If you have debt, you really need to start paying that off as well. All you have to do is to make a plan and stick to it if you are interested in saving money.

This is the hardest step!

Writing out a budget on paper is very easy but it is much more difficult if you are invited out for drinks after work and you have already spent your discretionary money for entertainment. You have to equate budgeting with dieting.  If you were dieting and you ate too much bread, you know you will have to cut back on some other food so you don’t exceed your calories for that day, well the same thing is true for budgeting.  If you overspend in one area, you will have to cut back in another. Learning how to live on less or within your means is a good way to go.

Sticking to you budget will lead to peace of mind and will save money.  There are many online resources that you can avail yourself to. There are also offline resources like the library where you can find simple tools that will help you to stick to your budget.

Filed under: How to Live Frugally

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