It is one thing to be able to say that you want to have better control over your finances, but something else entirely to actually have that control. Most people would like to be able to say that, because they don’t want to admit that their finances are out of control. Most of us really would like things decent and orderly – and a budget will help you to have that order.

This was a problem I faced when I saw that my own finances were getting the best of me. I knew it was time to get my financial things together, since things just could not continue the way they were going without great consequences in the near future.

What a Budget Can Do for You

A budget – I already knew – could help me to see where my money was going – and to know where it would go in the near future. Even better than that, though, was that a budget would enable me (and you) not only to be able to set some money aside into savings, but it would also give me better control – the control I needed.

How a Budget Works

Budgeting your money enables you to see at a simple glance – if you keep up with it – just how much money you have available at any time for that budgeted area – food, as an example. It also lets you know how much you need out of your upcoming paychecks for the month where your money has to go out toward bills.

As you learn to look at your budget and not your checkbook, you will quickly understand whether or not there is extra money to buy an extra item with – or if you should not buy it. The accounting lets you know, and it takes the guesswork out of it.

How to Set Up a Budget

A budget is not really hard to set up. What I did was to take my checkbook and wrote down all of my recurring bills – every one of them. Then, I listed all my bills that change from month to month (like the electric bill, heating, etc.) for the past 6 months and put them together so I could average them. I first made sure that I had some winter bills in there and some mid-summer bills to account for the air- conditioning – this would give me the extremes.

Then I looked over my credit card bills and wanted to find out if there were any regular expenses I had missed. It is important that everything is included. Here are some things that you might want to make sure are in there:

• Rent / Mortgage payment
• Food
• Electric
• Gas / Oil
• Water / Sewage
• Trash removal
• Phone – landline
• Phone – cell phones
• Car payment (s)
• Car insurance
• Credit Card payments
• Health Insurance
• Life insurance
• Other insurance
• Clothing
• Car Maintenance
• Gasoline and Oil
• Cable / Satellite TV
• Internet Service
• Education expenses
• Taxes
• General Household
• Medical / Dental Expenses
• Home Business Expenses
• Subscriptions (Newspaper & magazines)
• Memberships
• Home Maintenance
• Entertainment
• Other

After all these things, I also had to try and figure out how much I and other family members were spending in cash each week and month. This can be difficult. In order to be sure, I had to go for a month and get receipts for everything – from everybody.

Once there is a total understanding of where all the money is going, then you also need to know what money is coming in. Besides your regular paycheck, this must include everything like alimony, retirement, gifts, child support, etc.

Then, subtract all of your expenses from your total monthly income, and this will let you see how much money you actually have to work with for extra things. If there is no balance, then you must immediately find places to cut down on your current expenses so that your bills are less than your income – or you are headed for serious trouble. If there is not much left after bills, it is also strongly recommended that you reduce your bills somewhere.

What Your Budget Needs to Include

Now comes the hard part – it has been rather easy up until now. After you subtract all your current monthly expenses, you want to add into your budget amounts for:

• Emergencies
• Deductibles
• Medical and Dental

Each of these things is things that you always want to have cash on hand for – when there is a need. If you have young children, the need will probably be sooner than later.

Besides this, though, you also want to add in a savings plan – both short-range and long-range. Short range refers to those things that you need to save up for – possibly for a few months – like a washing machine and dryer – or for some electronics. Long range refers to those much larger items that you may need to save years for – like college, a special vacation, a motorcycle, a boat, a house, etc. It has been long recommended that you should try and save about 20% of your income.

What a Budget Needs

After you have your budget set up, and you know what money you have for extras, then it comes time to fine tune it. You keep a record of your actual expenses each month, and note how often you regularly go over – or under – your allotted amount. Where there is considerable difference, you want to adjust your budget accordingly. For instance, after you make your budget, suppose the electric company raises its rates by 8%. This means, if your budget is accurate, that you should add 8% to the total amount for electricity – or, cut back on your use of electricity to try and compensate for the raise in costs (trial and error).

It is also a good idea to review your budget after the first month and then again about two months later – to see if some adjustments need to be made. After that, look it over about every six months to determine its adequacy for your needs.

What a Budget Requires

Household budgets look great on paper. It makes you look organized. But unless you actually have the discipline to stick to it, it is just so much ink on paper. It is not the numbers neatly recorded that will make it work – but your determination to limit yourself to those numbers.

Household budgets are merely a tool to help you control your finances and be able to control and save money. You can make a budget on your own or buy some home budget software for the purpose.