Creating a Budget from Scratch

budget in a jarDo you ask yourself where all the money goes at the end of every month? Do you tend to lose track of which bills you’ve paid and which are due? Do you tend to just pay whichever arrives first? If so, you need a budget. This helpful tool tracks all of your financial information at a glance. Not only will it organize your finances and pinpoint ways to save money, but it will set you on the road to financial security.

Follow these six steps to create and maintain an accurate budget:

  1. Identify income. Write down your average monthly income. In addition to salary, think of all other expected sources of household income including tax refunds, raises, child support, etc. Use our handy budget worksheet.
  2. List expenses. Be honest with yourself about all household expenses, including eating out, salon services and hobbies. Consider all of your regular monthly bills like phone and utilities, and your debt to creditors through bank cards and other lenders. Remember to include period expenses like auto registration, property taxes, car insurance–that are due only once or twice a month. For those, take your annual payment, say $271 for car registration, and divide by 12. In this case, you would add a $13 a month line expense, for car registration. These fees are critical and cannot be overlooked. If you have trouble remembering or estimating totals, a credit counseling consultant is a helpful, unbiased source of expertise.
  3. Pay yourself first. Make sure that your written spending plan allows for some money to be put aside in a savings account each month. Credit counseling advisors say that the amount is not as important as establishing the savings habit-small amounts quickly add up.
  4. Make adjustments. The goal is to adjust either your income or expenses to make ends meet. (You need to figure out a way to avoid being in the negative when you compare monthly income to monthly expenses.) Making expenses fit into the available income is an art, not a science. If you’re short, your choices are to either increase your income or reduce your expenses. Reducing expenses is more doable for most people and we offer many suggestions on ways to save.
  5. Dump the debt. If a large part of your monthly expenses goes to paying down debt, the most helpful step you can take to building a strong financial future is getting rid of that debt. A debt management plan (DMP) is one option that a credit counseling agency can provide. In a DMP, a credit counselor will work as a mediator between you and your creditors to make payment arrangements that are typically lower than what you are currently paying, while allowing you to consolidate your payments into one convenient monthly sum.
  6. Track your results. Check your budget monthly to monitor how much closer you are to reaching your financial goals. Your budget will quickly become your “good news” financial statement for the month!

A budget is a particularly useful tool for managing debt, explain credit counselors, because it helps you stay focused on paying off bills. It is powerful to see those balances drop month after month, knowing that you are achieving your goals by sticking to a realistic budget.

During Clearpoint’s credit counseling sessions, certified credit counselors create personalized budgets and debt management plans that put clients on the road to secure financial futures. For free help creating your budget, call 800.750.2227 (request a credit counseling session) or start online now.

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