Budget Building Blocks

Every financial plan starts with a solid budget. It doesnt matter if you live check to check or make six figures, you need to know where youre money is going in order to maintain your financial health positively. People hear budget and see hand cuffs and restraints but in fact a budget can provide real financial freedom and even reduce stress. Knowing how much money you have and where it goes can easily be achieved with establishing a budget and sticking to it.

First, you want to establish where youre currently at, your debt to income ratio. As most of us are paid on a weekly or bi-monthly basis, this is best identified by a monthly breakdown versus an annual assessment. Start with your income.

How much money are you bringing in each month? You want to evaluate the net amount not the gross. The net amount is the amount received after taxes, social security, and any other deductions you may be incurring. An easy way to remember gross versus net: Its –gross- how much gets taken out of your check each pay period. You –net- what you take home, like what youve caught in a net. I like the gross taxes one myself, lol. Now, if you share household expenses with a spouse or roommate, etc youll want to account for their wages/contributions as well to properly coincide with your expenses.

Once youve established how much money youre bringing in youll then need to know how much money youre paying out each month. Start a list, beginning with the necessities: mortgage, rent, car note, insurance, medical, and any other bills youre required to pay each month at a standard rate. Then, start accounting for the expenses that are every month, but the amounts vary. These would include things like gasoline, utilities, food, etc. Estimate an average monthly amount on these based on previous months and old statements and receipts. Ok, so you now have accounted for your living expenses that are required to survive. Youll now want to assess what other expenses you incur every month in your day to day dealings.

Are you a smoker? Do you eat fast food? Order out? Shop online? Go to the movies? Get your car washed? Groom the dog? These miscellaneous expenses are usually what put people over the top but can easily be regulated with a solid budget. An easy way to identify what youre spending your money on is to check your previous bank statements and see what youve previously purchased with a debit card or visa transactions.

Adding up all your monthly expenses totals your monthly debt ratio. Subtract this number from your monthly income amount to see if you have disposable income remaining or if youre in the negative. Being in the negative means youre overextended and some adjustments need to be made to keep a positive debt to income ratio and avoid further financial conflicts down the road. 

A certified credit counselor can provide a free budget counseling session and provide a free financial analysis to evaluate your budget and help find ways to cut some expenses and help you get back on track. There are tons of ways to cut costs and save on insurance plans, cell phone plans, etc that a certified credit counselor can advise on and help decrease your monthly expenses. Call one today at 800.905.1563 or visit our website freedomdm.org to learn more about budget counseling, debt consolidation, and how to improve your credit score. Our non-profit counselors are here to provide free advice and help you start building your financial future.