How to Create a Budget - Post #2

This is the second in a series about how to create a budget. These steps take you through the mechanics of actually creating and working with a budget. Read here for the first three steps.

Step 4: Create categories for all of your money. These categories will be driven primarily by how you spend your money, and so you'll need to modify it for yourself; but here's a list to get you started.

Savings (yes, it's first on the list because you should make it priority for those inevitable lean times)
House - mortgage/rent, insurance, repairs
Auto - payment, insurance, fuel, maintenance
Food - dining, groceries, lunch money
Entertainment
Credit Card
Cash allowance (I know, cash is a little old fashioned, but it's easier to stick with the right amount on your "free" spending than using a debit card)
Charity donations
Daycare
Medical
Life insurance
Telephone - land line and/or cellular, ISP
Utilities - water, gas/electricity, sewage
Garbage Removal
Gifts
Vacation
License Plates
Television
Bank Fees
Business Expenses
Clothing
School Supplies & Fees

Step 5: Based on your tracking of how much money you spend, assign a certain amount for each category per month (or whatever time frame you're using.)

Step 6: Balance your budget. This is a vital step, your income has to be at least as much as your expenses. If you find your expenses outstripping your income, you will need to make some tough decisions about where you can cut back. Can you spend a bit more on groceries which will save money on food since it costs less than eating out? Can you check around and see if you can get a better deal on your insurance? Do you qualify for any assistance programs for your utilities or daycare? However you get to the bottom line, your income has to cover your expenses.

The next post on budgeting will talk about how to use this new tool to actually make a difference. Because that's just what a budget is, a tool. And no matter how fancy or thoughtful your tool is, it only works if you use it correctly.