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Steps on How to Prepare a Budget

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How to prepare a budget in 5 steps

Some people think learning how to prepare a budget is a daunting task. Truthfully, when it's broken down, it's really not that bad. Budgeting can be done in 5 steps. Read through these steps. Remember, budgeting is crucial to your family's financial help. As prices rise, the importance rises, equally. With proper tracking and planning, you will learn how to master your money, rather than let your money master you.

The other thing to remember is that a budget is not static. This is an active process that requires you to revisit it often. You need to have an active interest in your budget. You will need to continue to keep any eye on your budget and look for necessary adjustments. It's the best way to stay on track to building your financial future.

How to Prepare a Budget - Step 1

Figure your montly income

This is your net income. If you receive a paycheck, you already know what this number is. It's the amount you make, minus taxes, and other costs. It's the amount you bring home and can spend (or save) as you want.

If you own your own business or do contract work, you might have to figure this by hand. Take your gross earnings and subtract the amount you'll need for taxes and subtract costs you incurred. This is your net income.

If you have more than one source of income, list them separately. Then, add them up for your total monthly income.

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How to Prepare a Budget - Step 2

Figure your expenses

This is a great way to figure out if your money is being spent on things you want or things you need. First list your expenses that stay the same, every month. Things like mortgage or loan payments go on this list. Add them up under the title, "Fixed Expenses."

Next, add up what you paid for items that are different, every month. Things like food, clothing and entertainment go here. Make sure you include everything, as it's own entry, in subcategories. For instance, each trip to the grocery store would be an entry in the "Food" subcategory. Then, you add these up in a category called, "Variable Expenses".

Now, add these two together to get your "Total Expenses" for the month.

How to Prepare a Budget - Step 3

Compare you monthly income ot your monthly expenses

This is where you start to draw "The Big Picture". Subtract your total monthly expenses from your total monthly income. The result will either be positive or negative.

If it's positive, this is a surplus and great news for you! This means you have discretionary income. It's called this because you can use it, at your discretion. My suggestion is to ear mark as much of it as you feel comfortable for savings. The more you save, the closer you can come to financial independence. At the very least, use this money to build up an emergency fund. It's suggested that you have a fund to cover expenses for 6 to 10 months, in case you lose one or more sources of income.

If the result is negative, then you have problems. You are outspending your money, probably using debt. Debt is a guarantee that you will never be in a positive financial situation. You have two choices, increase your income or reduce your expenses. The best thing would be to do both.

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How to Prepare a Budget -- Step 4

Get your budget in balance

If your calculations show that you are living above your means, you might need to cut back on spending. You will need to cut at least the amount you over spent. Cutting more is better. The first place to look is in your variable expenses. These can be adjusted easier than your fixed expenses. Look for ways to cut your food budget, for example. Eat out less. Buy store brands, rather than name brands. Go through each item in your expenses and see what can be reduced. Keep cutting until your total is either negative or, better yet, positive.

How to Prepare a Budget - Step 5

Repeat monthly

Every month, you will need to balance your budget. You will need to add up your income. You will need to add up your expenses. You will need to figure the difference between the two. How you do this is up to you.

You can use pencil and paper. Get a ledger and fill out your information, every month. Keep former months so you can track your process. Review these sheets every month. This is the most time consuming way to keep track of your money.

You can set up a spreadsheet, such as Excel. This will allow you to make better side-by-side comparisons and figure averages, using formulas. This will save you some time, over the pencil and paper method and help reduce math mistakes.

My suggestion is you use budget software. These packages will greatly reduce the time you spend on your budget, every month, and most give you suggestions and graphical representations of your budget and your progress to give you the best pictures, fast!. My personal recommendation is Money Tree Personal Budgeting Software. It's reasonably priced and can get your budget set up in about 20 minutes! It provides reminders of payments due and will greatly simplify your monthly budget tasks. It even suggests ways to save money!

Money Tree Personal Budgeting Software

The best way to prepare your budget

I love this software. I can set up my budget fast. I can get an instant picture of how I'm doing. I can plan for the future. Here's what others say:

"I was lucky to be one of the first people to try out Money Tree Personal Budgeting Software. My day is normally so busy with the kids that I don't have time to sit down and plan out how I'm going to spend my money. I just spend it when I have to. After watching the demo video of Money Tree's software I gave it a shot and realized that budgeting doesn't really take that long! In fact I was able to create an entire budget for this month while my kids were brushing their teeth. Best of all, my 9 year old daughter came up to me and asked if she could put her goal in too! Perhaps I should let her make the budget for the month, since she's so enthused to do so. Money Tree is so easy and fast to use that I can actually keep up with it. And never the less it's great to watch my kids wanting to help. I really recommend other busy moms out there to give Money Tree a try because if it can work for me I'm sure it can work for you."
-Brenda in Michigan

"The one thing college never taught me was how to manage my money (Imagine That!). So after I got my first job I was constantly overspending and always waiting for that next paycheck. Then my friend told me about this great software, so I checked it out, and I'm glad that I did. Being a computer savvy college kid, I picked up a copy right away and had my budget figured out in 10 minutes! It's crazy to see how much I was spending before I had a plan, thanks Money Tree!"
-Matt in California

"When I first saw Money Tree I thought it was just another piece of lame software. But I bought it anyway (because my girlfriend liked the colors). It turned out that I was totally wrong, and as much as I hate to admit, it my girlfriend was right. The colors aren't just good looking, but my bank account is too. I'm not a wiz with computers but Money Tree made it easy for me to figure out how to save a few bucks every month. Living on one paycheck after another just isn't right and I'm not going back to living like that. For real, anyone out there that needs help saving that money needs to buy Money Tree. You don't have anything to lose!"
-Tom in Maryland

"My parents are always nagging me about how I should save my money. So I tried Money Tree because I thought it would be very simple to use, plus it's very pleasing for my eyes. It's great for college students like me. I use it to budget for food, books, tuition, gas, nights out and some unexpected expenses. It's so simple to use I'd rather budget my money then do my homework. I like staring at my net cash each month because it's green (meaning positive). I convinced my friends to use Money Tree too so they can have that sense of victory when you brag to your parents about the things you can afford and money you save. That makes them stop nagging you!"
-Cindy in New Jersey

"Even though I'm computer savvy, plain and simple is never a bad thing. Money Tree Personal Budgeting Software's graph of previous months is great for tracking how well I'm able to stick to my budget over a course of time. If over spending is a trend on the graph, then I know that I have to change my money allocation. It is very easy for me to see where all of my money is going in the statistics worksheet, so I know exactly what to fix if I have to. My biggest flaw is that I always miss payments on bills but the Budget Buddy is really helpful in reminding me. It's like a little friend that sits in my tool bar and reminds me every time something is due. What a great friend! Overall, Money Tree is just what I need. I can't wait for all those neat new features they're planning to add!"
-Randy in Florida

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