How to Make a Budget

So I've told you that in order to get out of debt you have to plan for paying that debt down, but how do you go about making that plan? By making a budget. But how exactly do you go about creating a budget?

The first thing you have to know is how much income you earn. If you're salaried this is pretty easy to figure out. The only small challenge here is figuring out the timing if you aren't paid monthly or bi-monthly since most of your bills will be monthly. If you're paid bi-weekly, you have a choice about how to budget your income. You can either multiply your salary by 26 and then divide by 12 to figure out a monthly amount, or you can budget for 2 checks per month and the two times per year that you receive a third check, this can be extra money. The other option is to plan the timing of your checks and plan certain checks for certain bills. The method you choose here should be the one that works best for you.

If you are paid hourly, piece rate, or any other type of rate that doesn't guarantee the same amount on each paycheck, figuring out how much income to count on can be more difficult. You can figure out an average of the amount you bring home on each paycheck, or you can figure out a minimum that you always bring home and treat any additional amount as extra just like the salaried method.

The next step in budgeting is determining what your expenses are. Some of your bills are easy such your mortgage or rent, daycare, car payments and other set expenses which just get plugged into your budget at the amount you pay every month. Bills like utilities, groceries, gas, clothes, etc. are more variable and you'll probably need to figure out on average how much you spend on those bills each month to plug into your budget.

You may find that after you put down all of your expenses, you're spending more than you make each month. This is frequently part of the problem with going into debt, when we continue to add expenses without making sure that our income can support the additional expenses. If this happens, the solution is either making more money (good luck and let us all know if you figure that one out!), or cutting your expenses. Maybe you'll find that you've been spending about $200 per month on clothes. So you can look at spending $100 per month, and not allowing yourself to spend any more than that. If it's your utilities that are causing you to blow your budget you can try setting your furnace 2 degrees cooler and wearing a sweater in the evenings; or spending a little bit of money and getting a programable thermostat. If it's your grocery bill, look for coupons or try a generic brand of your favorite food. The key to getting your finances back under your control is to spend less than you make; and having a full understanding of how much you make and how you're spending that money is the first step.