The first thing to do is figure out how much you make (income) and how much you spend (expenses). Here is how you do it:
NOTE: If you are using software to help you budget you should be entering all of these numbers into that software.
- Income is the easy part. How much money do you make? For most people this is simply looking at your paycheck. If you make money from other areas you should add that in too.
- Expenses - This is the hard part. Most of us have a lot of expenses that come from a lot of different sources
- Food - Include all your groceries in this number. We don't recommend including any money spent on dining out in this number. That should be a separate category because it is one of the places that you can focus on to save money. Dining out is expensive!
- Housing - If you rent this is simply how much you pay in rent. If you own a home there is a lot more included. Mortgage payments, taxes, insurance, and home improvement and repair costs should all be included.
- Car/Transportation - Cars have a lot of expenses. Include the car payments, insurance, maintenance, gas, parking, car washes, etc. If you take the bus or train instead of driving a car track these costs instead.
- Insurance - Health insurance costs can be a big expense depending on your situation and your health.
- Education - If you, your spouse or your kids are in school, include that. This also could include college loan payments.
- Personal Items/Entertainment - This can be broken up into several categories depending on your personal spending habits. It includes clothes, vacations, movies, etc.
Add it all up!
Once you know your income and expense totals you need to subtract your expense from your income. Hopefully this will leave you with some money left over. If it results in a negative number than you have some budgeting work to do. Click here for some tips on areas that you can focus on right away to begin lowering your expenses.