How to budget expenses?

A wallet with money next to a calculator.

Here is a simple method on how you can draw up a budget to monitor your expenses:

1. Write down monthly expenses


Using your bills, receipts, and statements derive for one month how much you spend on food, housing, utility bills, car expenses, etc.

For bills that are paid annually, divide by 12 for the monthly amount. If in a family setting it is advisable all members be included in the budgeting process to facilitate effective implementation.

2. Organize expenses into categories


It is important to put your expenses into categories, it will help you during the analysis stage of the budget. Here is an example:

Monthly Expenses

Food-----

Education-----

Rent or Mortgage-----

Insurance/Taxes ----

Utility Bills -----

Automotive-----

Entertainment/Travel ----

Phone-----

Other ---

TOTAL--------

3. Figure out where cost can be cut and savings made


Armed with data of expenses in each category, you are now in a position to evaluate where costs can be cut and savings made.

Then calculate the total amount of expenses by adding all the categories. This figure will be used to compare with your net income.

4. Compare your income and expenses


First calculate the combined net earnings of all in your household. Then compare with your expenses as follows:

TOTAL MONTHLY INCOME--------

(Minus) MONTHLY TAX------------ ( Annually tax divide by 12)
(Equals) NET INCOME-------------

(Minus) TOTAL EXPENSES----------

(Equals) (EITHER SURPLUS OR DEFICIT) ------------

If you have a surplus then plan how much money to set aside for savings as well for unexpected happenings e.g. Illness, but if you have a deficit then reassess your expenses again for cost cutting measures.

5. Formulate your budget


Using the information above, write a budget showing how much to you intend to spend monthly in each category of expenses and compare it with the total anticipated net income.

Finally, write down your estimated monthly savings and now you have a working budget.

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