Budget to Success

How to Create a Monthly Budget

simple guide to create your first budget

Setting up a budget for the first time can feel overwhelming.

So we devised a step by step guide to help you get started.

What is a budget?

budget is a plan for organizing your income (assets) and personal expenses (liabilities).

Setting up a budget is about creating visibility for your economic situation.

Having one in place can significantly reduce the adverse effects of unforeseen circumstances on your personal finances.

Here are some essential questions to consider when creating your monthly budget for the first time:

What is your monthly net income?

Your monthly net income is essentially the amount you have left after all taxes and payroll deductions have been subtracted from your monthly gross income.

How much liquid assets do you available?

Liquid assets are typically anything of value that can easily be sold for cash in the event of an emergency.

These assets also include physical cash that you have saved, along with amounts you have in both your checking and savings accounts.

What are your total monthly expenses?

Total monthly expenses should include everything you spend during the month.

Typical monthly expenses include:

Housing (rent/mortgage)
Transportation (gas, car note/insurance, ride-sharing, mass transit)
Food (groceries, fast food, restaurants)
Debt Payments (credit cards, student loans, installment loans)
Personal Care (clothing, hygiene, beauty products, gym membership)
Communication (cell phone plan, internet)
Utilities (electricity, heating, water)
Entertainment (movies, concerts, social activities)
Insurance (medical, dental, health-care cost)

Organizing expenses into specific categories can reveal which spending habits impact your bottom line most.

Likewise, you could also organize each expense by how frequently they occur, such as fixed and variable costs.

How long can I survive on my current savings?

The more you have saved to cover future monthly expenses, the better chance you have of weathering through an unexpected loss of income.

Part of improving this time horizon is ensuring you generate a healthy cash flow (extra money) each month once your expenses are paid.

A negative cash flow (insufficient to cover expenses) may indicate that significant changes are needed to reduce your overall cost of living.

The more you track your income and expenses, the better equipped you’ll be to make the most thoughtful decisions for your situation.

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