As an accountant, I get asked this question a lot: How do I start a budget?Â My answer: know your income and expenses! Obvious? Well not for everybody. You will be amazed how many people do not know how much they have in their bank account or how much is the phone bill? To start a budget and to be able to stick to it, you need to know all those details!
When you have a budget in place you will be able to track your spending and saving effectively every month.
How to start a budget: Know your revenue stream
It is important to understand how much money flows into your household every month by referring to pay slips for all the working members in your house. Â Many banks offer budgeting services, expense tracking! Use those tools to build your budget! Since your expenses may differ from a month to another, it is better if you tracked the last 3 months to start! Â Once you have the net incoming amount for the month, note it down. Some people prefer a notebook but I use an excel spread sheet that looks like this
|Monthly net income||Me||Partner||Total|
|Child support (If you have any)||100||100|
|Other revenue stream: rent, etc||100||100|
As you can see, I have 3 columns. One for me, one for my partner and a total. In our family, all the income is added to one pool, one bank account! It is a family matter!
How to start a budget: Know your expenses
Then comes the expenses. This can require extra work as sometimes it is hard to predict some expenses! Be sure to include mortgage, rent, insurance, utilities, monthly savings or any other amounts that you spend every month. Do not forget to add your monthly grocery as well as food expenses, which include take outs too. You can use your banking tool to know exactly how much you spend and which area! You can also track down all your receipts! I use my banking tool as I find it easier! I usually set aside 10% of our revenues as a monthly saving in a separate bank account!
Once you have covered your monthly fixed expenses, make a list of all the incidental expenses such as gifts, clothing, supplies as well as auto maintenance. Allocate how much amount you would spend on all of them and then subtract the entire incidental expenses from the leftover amount for the month. If you run out of cash during this process, you will have to take another look at your incidentals and reduce the amount allocated under each category or do away with one or two categories of incidental expenses in your list.
Even if I donâ€™t have car maintenance or clothes to buy every month, I include them in my monthly budget! This money is set aside in a separate bank account so when I need it, I have the money already!
|Baby Sitting services||10|
This is how to start a budget! Next week, we will see how to stick to your budget!
Do you have a budget! Does it look like this? Did I miss something?