According to a survey by the Ohio Credit Union League, 20% of Ohioans are unsure how to create a monthly budget. While some effort is necessary, garnering a better understanding of your cash flow is an important step to strengthening your family’s financial situation.
We suggest the following steps to establish a basic budget:
Step One: Keep track of your income and expenses for a couple of months. You need an idea of what a “typical” month is like for you. For cash expenditures, keep receipts in an envelope you carry with you every day. Then go back to categorize and total the receipts at the end of the month.
Step Two: Lay out your budget. In the “expenses” part of your budget, you will be accounting for two major types of expenses: fixed and variable. Fixed expenses are set amounts you pay every month, such as rent, car payment, and utilities. Variable expenses include discretionary items, such as entertainment and clothing. Write down all the necessities so you know how much you have left for discretionary spending.
Step Three: Pay yourself each time you receive a paycheck. Payroll deduction or direct deposit can help you stick to the savings habit. No matter how modestly you begin, the important thing is to start saving and to include it in your budget. Even if you feel like you can’t save enough to make a difference, do it anyway! You’ll be establishing a savings habit that will be invaluable when you reach a point in your life when you have more to save.
Step Four: Evaluate your spending. You may need to trim expenses. Take a good look at where you spend money, and cut out unnecessary items. Even if you cannot eliminate any large expenses, you may be able to cut several small items. Every little bit helps. Try making yourself stick to a “waiting period” on purchases. If you see something you think you can’t live without, put it on hold instead of buying it on the spot. If you still have to have it after 24 hours, go back for it if you can really afford it.
Step Five: Don’t overlook big, once-a-year expenses. Holiday gifts and vacations can quickly turn into budget-killers if you do not plan. To help, divide what you spend on such items yearly by 12 and add this expense to your monthly budget. Also, budget a little each month to save for insurance premiums and car repairs if you want to avoid draining your savings account.
Remember: Don’t be too hard on yourself. Don’t make your spending limits unreasonable. Leave some room for unplanned expenses.