How to Create a Budget in 6 Easy Steps

WHO NEEDS A BUDGET ANYWAY? If you’re always wondering how you’re going to pay the next bill, feel guilty when you indulge in overpriced treats and you can’t seem to find money to put into savings, then you probably need a budget.

A budget is not a magic potion that will automatically solve all your money problems, but it will help you gain financial awareness. That, in turn, will help facilitate more responsible decisions.

Lots of people think budgeting is overly tedious, and that living within a budget means never indulging in a $6 latte or a pair of designer jeans again. The reality, though, is almost the complete opposite. A well-designed budget may initially take time to create, but once it’s up and running, it shouldn’t take you long to maintain. You’ll likely sleep better at night knowing you can comfortably cover all your expenses.

And, perhaps most shockingly, a good budget allows for the occasional treat—without the guilt.

HERE’S HOW TO CREATE A BUDGET IN SIX EASY STEPS:

Step 1: Gather all your financial information

Collect all your financial documents and receipts for three consecutive months. This includes all account statements, bills, pay stubs, receipts and more. You can save all these documents over the three months, or you might be able to access this information online, especially if you’re a card user who rarely uses cash.

Step 2: Tally up your totals

Divide your documents into expenses and income. Then, list the corresponding numbers on a spreadsheet. As you work through these lists, include occasional and seasonal expenses, dividing these expenditure groups by 12 to spread them evenly throughout the year.

When you have your numbers, look at how they match up. In the bestcase scenario, your income will exceed your expenses. If the numbers are too close for comfort, or your expenses outweigh your income, you’ll need to trim your spending and/or look for ways to boost your income, so you don’t end up in debt. You can also review your fixed expenses to see if there’s any way to bring those values down, such as refinancing your mortgage to a lower rate, switching to a cheaper car insurance policy or cutting out a monthly bill you don’t really need.

Step 3: List all your needs

Look at how you’ve spent your money in the recorded time and weed out all the actual needs from your list. This will include fixed expenses like mortgage/rent payments, savings, insurance premiums, car payments, minimum loan payments and childcare costs. You’ll also want to consider fluctuating expenses, such as groceries, clothing and other goods. To keep it simpler, list your fixed expenses first, followed by your nonfixed expenses.

Separating your needs from your wants can get tricky, and you’ll need to use your common sense. For example, you need to eat, but do you really need to eat organic? If this is an important value to you, the answer may be yes, but if it’s something you’d only prefer if possible, it may be more of a want.

As you list each need, write down its corresponding cost. When you’ve finished creating this list, add up the total.

Step 4: List your wants

Your next step is going to be all about the stuff you love to spend money on but can live without. Include entertainment costs here, as well as eating out, gifts, expensive hobbies and anything else that costs money, but is not an absolute necessity.

Here too, jot down the monthly cost of each item on your list and tally up the total when you’re done.

Step 5: Assign dollar amounts to your expenses

You’re now ready to do the nitty-gritty work of budgeting. Open a new spreadsheet and copy your lists of expenses, starting with the fixed-cost needs, your nonfixed-cost needs, and then list your wants. Remember to include your occasional and seasonal expenses here as well. Assign a fixed amount to each of these costs and plan to have that amount automatically transferred into a special savings account. This way, when you need to meet that expense, you have the money on hand to cover the cost.

There are several schools of thought when it comes to creating a budget. To keep things simple, we’ve outlined just two of the most popular budgeting methods for you to choose from.

The traditional budget involves assigning a specific dollar amount to each expense category. If your budget allows, simply use the average

amount you’ve spent in each category for the last three months to set the cap for that expense. For example, if you spent an average of $600 on groceries, jot down that number near this category in your budget. Continue until every dollar is accounted for. If your expenses outweigh your income, you’ll need to trim some expenses for your budget to work.

The 50/30/20 budget is simpler but requires more discipline. Set aside 50 percent of your budget for your needs, 30 percent for your wants, and the remaining 20 percent for savings. If you want to use this kind of budget, divide up your numbers accordingly to see if it can work for you. Does 50 percent of your income cover the total amount you listed for your needs? Is 30 percent enough for your wants? If it can work, this type of budget allows for more individual choices each month and less accounting.

Going forward, be sure to spend only the assigned amounts for each expense category.

Step 6: Review and adjust as necessary

Review your budget each month to see if you’re staying on track. If you consistently overspend in a category, move some numbers around and spend less in another area so you have more money available to meet your needs.

Remember: A budget should be freeing, not restrictive. If yours is not working for you, adjust and tweak it until you can stick to it easily.

Organizational Development Programs

Great organizations don’t just happen. The right balance of strong managers and exceptional leaders enables companies to plan strategically, set high goals, and achieve them.

Learn to strengthen the people who make up your team with the most advanced employee management and coaching programs available in Oklahoma, at a fraction of the typical cost.

Visit us online or call today for more information.

FRANKLIN ROAD CAMPUS: 4701 12th Ave. NW, Norman, OK 73069 SOUTH PENN CAMPUS: 13301 S. Penn Ave., Oklahoma City, OK 73170

mntc.edu/bis | 405.809.3511

Wine by Line

Wine is a complex and baffling subject for many. Most wine drinkers find something they like and never budge.

The wine served by a friend or at a restaurant becomes their wine for life, or at least for a long time. Then, when they have guests who drink white wine instead of their favorite red, they go out and grab a bottle with the same label.

While this is a great marketing strategy, it’s not always the best way to choose a wine. Many wine producers, particularly in the United States and Australia, follow a brand model. It’s obvious why the larger producers use this strategy, but why do small producers use it?

Economics. Startup vineyards can produce white wines in three to four years, as opposed to the six or seven years they need for red wines. So, even if the goal was to produce a perfect French style Pinot noir, the vineyard often develops a following for its French style chardonnay. Why is this important? Each wine has its strengths and weaknesses. It doesn’t matter if you’re shopping for industrial volume wines or the artisanal producer. The Cabernet Sauvignon in the box from one line may be very acceptable but the Pinot Grigio may pale compared to wine with a different label.

This type of the information is not always available at big box stores. But, local stores curate their offerings. They can select the best wines of each brand. With the help of your favorite local store, you can discover value priced wines that are gems. Staff recommendations are still the best way to select your wine, but you can also check reviews on your smart phone.

Enjoy and drink responsibly.

Kathy