Many people do not want to hear the word budget let alone draw up one for themselves. They think they know how much they earn and how much they spend and there is no need to put them on paper, or you hear them say there is nothing to budget anyway!  Sure enough they keep plodding along day in and day out trying their best to keep the ends meet without doing anything creative to improve their financial situation.

Budgeting is a planning tool to use so you can get a clear picture of your income and expenses for a given period.  It is a statement which shows you the sources of your income and projected expenses with the end view of meeting those expenditures.

A personal or family budget drawn out for the year and on paper is more likely to be implemented than a budget relegated in your memory. There is a sense of commitment once you put some efforts in making a budget on paper which you intend to follow.  So let’s create a basic monthly budget in 4 easy steps.  

1. Create a Budget Spreadsheet

If you are being paid fortnightly salary, multiply the net salary as shown in your pay slip by 2 to come up with a monthly amount.  We are using the net salary as this is the actual money deposited in your bank account by your employer which you will be budgeting.

Open MS Excel spreadsheet and type in My Budget for the Year 2010 as title and make 13 columns.  On top of column 1 type in Description, and from column 2 to 13, type in  each month – January, February, March, April, May, June, July, August, September, October, November, and  December.

2.  List Your Sources of Income

 Under the heading Description, type Income and under it  list all your income from all sources (Net Salary, Allowances, Other Incomes – name them individually) and put the amount under the corresponding month when you expect to receive them.  Be as accurate as possible, add each column, underline and put the total amount under it, then type Total Income as subheading under Description column.

3.  List Your Various Expenses

Now we will identify your expenses and we base the amounts from the latest bills you’ve got.  If you know for sure some of the expenses will be higher, use the updated amount. Under Description column, type Expenses and under it  list down all your expenses such as:  Food, Clothing, Mortgage Payments, Utility Bills—Lighting, Telephone, Internet, Gas and Heating, Education, Transportation, Car Loan, Property Tax.. Add these up and type the total and label it Total Expenses.

4.  Get the Difference of Expenses from Income

Lastly, deduct the total expenses from total income and you will see if you are in the red, that is your income is less than your expenses.  If the amount is in the red or  negative put a parenthesis to the amount. 

If you find yourself in the red, do not panic or despair, so many people are in the same situation, you are not alone!  This is one of the reasons why we are creating a budget—to find out where the problem is and look for solutions.

Generally speaking the way to solve the problem of being in the red is to increase your income and decrease your expenses.  I will not delve into these in details as it will require more analysis and deserve another article.  Some ideas to increase your income  are: get a part time job, sell more on eBay, offer your services in the community for a fee, etc.

Ideas to decrease your expenses – bring your own lunch to work, minimize eating out at expensive restaurants, minimize buying cappuccino at work, organize a car pool in going to work rather than driving your car, turn off lights at home when no one is using, minimize going to movies, quit unhealthy habits such as smoking, do not buy new clothes for a year, use what you have, etc.

The above are examples of what you can do to save money to improve your financial situation, and I am sure you can think of more ways to save.  The important thing is to take the problem by the horn and find ways to solve it, because unless you do, the problem will remain and blow up. 

Finally congratulations you have created a personal/family budget for yourself! Stick to your budget and implement it.