It is a new year and now is the time to start fresh with your personal budget. As anyone living in Marin County can attest to, it can be very expensive to live here. Because of this, without a proper budget, you can easily loose sight of where your money is going after every paycheck. This is why it's important to have a budget that you follow every month, but balancing it can be difficult if you have never created one before. Use these general steps to get started:
List Income and Expenses
To get started, my suggestion would be to examine your bank and credit card statements over the last 3 to 6 months to determine a monthly average. Your budget data can be tracked by simply using a pad of paper, a pencil, eraser, and a calculator. You can also use a spreadsheet program like Excel if you are more computer savvy.
A good first step is to figure out exactly how much you make (your income) and how much your bills are (your expenses). Once you've established your after-tax (take-home) income, it's time to list out all of your expenses. First, list easy-to-determine fixed expenses that do not change from month to month, such your mortgage or rent, insurance, car payment, utilities, childcare, cable/internet, phone, membership dues, etc. From there, move on to expenses you have every month (but that may not be absolutely fixed and can vary). This would include things like dining, clothing, gas and groceries. Finally, you can list out expenses that you have quarterly or yearly, and divide them by twelve to get in the habit of putting money aside for them each month (property tax, vacations, car maintenance, home repairs, etc). The budget for quarterly and yearly expenses can be placed in a savings account and pulled out when needed. This has the added advantage of not having to use credit cards to pay for these costs that can add up.
Determine What is Left
After listing out all that you owe each month versus all the income you make, you should be left with a sum of money that is "free" (If you aren't, you are running a deficit and you must go back to your expenses and determine where you can downsize, spend less, or make changes). From that pool of "free" money, you should set aside a certain percentage for savings, and then decide what you would like to do with rest (vacation fund, "fun money", etc).
Balance the Checkbook and Revisit
Of course, estimating costs in advance can be tough. You might have a year with higher-than-normal medical costs, or unforeseen home repairs. That's why it is so important to contribute to an Emergency Fund - a savings account for "rainy day" expenses such as these. It's also important to remember that because things do change from month to month, your budget is not something set in stone. Once you get started with your budget, you can determine what works best for you and try out different strategies. For the first year or so that you try out your new budget, you may need to make regular adjustments until you find the best strategy that works for you.
A budget is not meant to hold you back. Rather, if done correctly, it can help decrease your financial stress and negative spending habits. If you need help setting a personal budget, schedule a meeting with a professional financial planner who can offer objective advice and useful strategies.
The information in this material is for educational purposes only and is not intended as investment, tax, or legal advice. The opinions expressed and material provided are for general information, and should not be considered a solicitation of any kind.