Part Four of the Financial Preparedness Series: Creating a Budget

You’ve done all your ground work, and found a recipe for creating your budget; you’ve identified your ingredients and what you need to change. Now let’s finish your financial cupcake recipe.

Creating a budget is the back bone of financial preparedness. As in all things pertaining to life – keep it simple! If it’s too complicated you ’ll get frustrated and quit. We even have a Budgeting Worksheet to help you get started.

Here’s a step by step plan.

Step 1: Income

What are your income sources? Are they set amounts or do they vary? Can you estimate what you’ll make per a paycheck/month? I usually base mine on the net pay or “take home pay” amount. Net is after taxes and insurance are taken out because its “GROSS” how much they take before you can bring home your catch (for those of you who get them mixed up like I do).

Step 2: Tithes/Charity and Savings

These are the two things that should be happening first with every paycheck. They are also the greatest factors in financial preparedness and stability. Tithing is usually 10% of your income. You can determine whether to base that on your net or gross income. I prefer gross because I’m in essence paying for several things with that money, including future tax returns (if I’m lucky).

Savings is recommended at 10% but even $5 dollars a paycheck can make a big difference over time. Set what you feel comfortable with. Some experts recommend putting more in savings than toward debts until you have an emergency fund built up.

Step 3: List your expense categories and define them

A place for everything and everything in its place! This will help you track future spending and stay within your budget, and is also why you were supposed to get to the nitty gritty in identifying your ingredients.

I recommend putting them in order of date when they are due throughout the month. Put the items that don’t have set due dates last. This helps make sure bills get paid on time. Add one more category – Grace – to give yourself some wiggle room (I love this idea from SmallNotebook.org). If you follow the Dave Ramsey method, he calls it “Blow Money”.

Step 4: Fill in the amounts

This is another reason why it was so important to track your spending before you created a budget. Now you can take the average of what you spent in each category into the blanks. This will give you a truly realistic budget! Be sure to make a total of your projected spending so you are sure that you are staying within your income.

Every dollar needs a name. If you have funds left over at the end, put it in savings or towards a debt.

Step 5: Be sure you have a column for filling in the actual amount that you spent at the end of the month.

Now mix well, track your spending, and revisit your budget worksheet at the end of the month to fill in the blanks. Repeat step 4 each month making adjustments as needed.

Hopefully your first month is a huge success and that your cupcakes are sweeter than ever!

Other posts in the Financial Preparedness Series – Get Financially Prepared – Identify Your Spending – Assess needs vs wants – Create a budget – Saving Money – Counting Cupcakes & Financial Preparedness – Benefits of a Monthly Budget – 6 Ways to Boost Your Budget this Holiday Season