- Estimate your annual income for next year based on your current salary along with any anticipated bonuses or raises.
- Next list all of your expenses for the coming year. Things like house payments and car payments are fairly straight forward while things like gas and food can be much more difficult to anticipate so this may require a good guess the first time around. If you keep this information in some sort of spreadsheet, it will be much easier to gather each year. Don't forget to include annual expenses such as post office box rental and other anticipated, one time expenses such as a new roof.
- Subtract the amount you came up with in #2 from the amount in #1.
- If these numbers look frighteningly close, or worse, the number you come up with is a negative amount, it's time to do some tweaking.
- Consider ways to increase you annual income. Can you get a part time or seasonal job? Can you ask for a raise or look for a higher paying job in your company or field?
- Next consider ways to decrease your expenses. Look at every single expense on your list and look for ways to make cuts. Can you refinance your house to a lower interest rate? Can you sell an unneeded car so you can drop the insurance and gas expenses? There are ways to slash almost every expense on your list with a little research and creativity.
- How do the two numbers look now? If they are still too close or a negative number, more drastic steps may need to be taken such as selling a house you cannot afford and moving to a cheaper place. You may need to cut cable all together. Whatever changes you make, the numbers need to make sense. You need a bit of positive room between your income and expenses that will allow you to both save some money and still have money available to pay down debts.
- Get buy in. While you may be the number cruncher, like any organization that puts together a budget, you will need to get buy in from the people it affects if you want to have a budget that is both supported by all involved and realistic to meet everyone's needs.
- Live within the budget. If you have $400 budgeted for gas each month, it is necessary to make every effort possible to stay within that amount. You may need to look into carpooling or grouping errands together to stay within the budget. If the budgeted amount is not realistic and you are continually over budget, you may need to make adjustments by expanding the category that is over budget and subtract money from another category.
- Periodically review the budget, perhaps quarterly, in order to make sure all is going along well.
It sounds simple to budget when you are reading about it, but whether it is a budget for your home or business, the bottom line is to be able to control exactly where your money is going so that YOU will control your money instead of your MONEY (or more likely your DEBT) controlling you.
p.s. Get started on this process now so you can hit the ground running in January!