basic steps to create a monthly budget

Sir Francis Bacon once wrote that knowledge is power. If you don't have any knowledge of where your money comes from or where it is going, then you have no power over your finances. Here is where you start:

Step 1

Regular income

Some people have many forms of income. What you want to do first is to determine what income you know you will have this month.

Step 2

Regular expenses

These would be what you know you will be paying this month. You should be gathering up bills, credit card statements and bank statements and start to look over them. Make a list of bills you pay regularly (gas & electric, internet, car insurance, etc.) and write them down with a total. Then you can also look at your credit and bank statements to get an idea of what you spend regularly in a month on things such as fuel, groceries and entertainment. Use this information to guess what you might spend next month. Write it down.

Step 3

Special income

This is where you would put income that you know you will be getting this month that is not part of your regular monthly income. For example, you may be a school administrator during regular work hours, but you have some woodwork skills and somebody wants you to do a little project for them. If you have that project coming up and you know how much it will be, add it here. Add up your total and write it down.

Step 4

Special expenses

This is where you put expenses that you know you will be paying this month that are not a part of your regular monthly expenses. Some good examples would be birthdays and holidays in the month. Write down the total.

Step 5

What to do with the rest

First of all, figure out what is left. Use this equation:

(Step 1 + Step 3) - (Step 2 + Step 4)

That is, add your regular and special incomes together, add your regular and special expenses together, then subtract the total expenses from total income and that gives you all that is not yet budgeted. Now you get to decide what to do. Plan on using it to get out of debt. It could also be invested or used as play money. If you don't know what to do with it, plan on putting it into savings. Whatever happens, make sure you plan to do something with this money and put it into your budget. You may even get to this step and discover that you are in the negative. If you are showing a negative number, this is when you need to go back and see what expenses you could possibly eliminate in order to get your number out of the red. You might need to make some sacrifices in entertainment.

Once your budgeting is done, do your best to stick to it throughout the month. At the end of the month you should compare what you budgeted to what you actually earned and spent. Then, take what you've learned and make adjustments for next month's budget.

This is a very simple walk-through of how to create a monthly budget for those of you who have never budgeted before and are now working on getting your finances in order. Check in later for more tips on budgeting.