The word “budget” seems to be used a lot lately. At an auto dealership you might hear the phrases “What is your budget?” and “What payment fits your budget?” from a sales person. What exactly do they mean? You are not alone. Most people don’t know what a budget is or don’t use it regularly with their finances. This post will explain what a budget is and how you can use it to better understand your finances.
A budget is defined as an estimate of your income and expenditures for a period of time. If done correctly, you will be able to know how much money you are receiving and spending in any given month. If you find out you are over spending each month, a budget will help find where you need to reduce your spending or whether you need to borrow money to pay for the essential items in your life.
Creating A Budget
Creating a budget isn’t difficult to do; however it might be something we do not have time to create but will help you get rid of your financial stress. When creating a budget, a period of one month is ideal. There are websites such as mint.com that can help you create a digital budget. Our discussion going forward will be around creating a one month budget on paper.
A budget has two main parts. The first part is your projected income. In this section, you will list out all the income sources you receive each month. This includes your monthly paycheck from each job, any child support, and social security. Add all your entries together to get your monthly income. Next we move into the second part of a budget; which is your monthly expenses.
In the expenses section, you will list out all expenses you are expected to pay during the month. Some expenses you might have are listed below. For bills that are based on consumption such as electricity, enter a rough estimate for the expense. Remember a budget is just an estimate of what your finances will look like during a period. Additionally you can also include items such as entertainment in the expense sections. Finally add up all your items in this section.
- Groceries
- Auto Payment
- Mortgage Payment
- Water and Trash Bill
- Electricity Bill
- Natural Gas Bill
- Auto Gas
- Date Nights
- Fast Food
It is now time to take the sum of your income section and subtract your expense section from it. If you have a positive dollar amount, congratulations you will have extra spending money this month that you can use to put in savings or buy yourself a gift. However if your dollar amount is negative, you will be over spending this month. At this time you will need to look over your budget and see where you can cut expenses. Try to keep your projected budget positive just in case you end up spending more during the month than expected.
If you find that you cannot cut any expenses or if you cut expenses but still are negative, you might need to borrow money to increase your income for the month. Sonariz Financial has various loan options to help you through a negative budget. You can always give us a call at 928-782-6900 or visit us to discuss options to increase your income. Visit our Contact Us page for more contact options.