Budgeting Made Easy

The first step to creating your budget is to list all sources of monthly income.

Step 2: Analyzing your expenses

The next step is to list your expenses. Expenses are separated into three categories: fixed, flexible, and discretionary.

  • Your fixed expenses are necessary items in your budget that cost the same each month, i.e. rent, loans, and car payments.
  • Flexible expenses are necessary expenses that can fluctuate depending on different factors. Sometimes flexible expenses are items you need, like groceries, but you can control how much you spend on them by choosing less expensive items, shopping at discount stores, etc.
  • Discretionary expenses are all the other expenses that don’t fall into the two previous categories. If your expense-to-income ratio is out of balance and you are spending more money than you earn, items from this category should be eliminated or cut back.

TIP: Pay yourself first. Set up a savings account and transfer at least 5% of your income into the account and try to forget about it. The extra money will come in handy when you need

Step 3: Organizing your budget

After the second month of using your budget, compare what you’ve actually spent and the amount you’ve budgeted. This will give you a clear picture of how realistic the amounts you
budgeted are for each item and will allow you to be more accurate when doing your next monthly budget.

Where You Stand…
Now that you have compiled your income and expenses it’s time to do the grand totals! All expenses are totaled and then subtracted from the total income figure for the month.  The amount that’s leftover can be used for day-to-day unexpected expenses or you can use it to make an extra payment on your debt. Next, to really measure your progress, divide your total expenses (minus monthly savings contributions) by your total income using this formula: (Total Expenses – Monthly Savings) ÷ Total Actual Income This is your expense-to-income ratio.

TIP: To avoid living paycheck-to-paycheck, this number should be 0.75 or less. Anything over 1 indicates that you’re spending beyond your means. You must begin to prioritize expenses.

Step 4: Analyzing your borrowing

Loans – and how you repay them – are a big part of your budget that you can’t afford to forget. List your current loans or the loans that you are thinking about taking out. List your monthly credit card debt including all major credit cards, department store credit cards, gas credit cards, and dining cards. When you’re finished, total up the amount and make it a fixed expense.

TIP: Making credit card debt a fixed expense can help you pay down your debt faster.

Step 5: Sticking to your budget

This is the most important step.

TIP: Plan for when your income is higher than expected. If you get a raise or receive a tax return, put most of the extra cash ow toward savings and/ or debt payments. We know it’s tempting to use it all on discretionary expenses, but you will thank yourself later for saving the majority of it.


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