3. Prepare a Personal Budget or Spending Plan
If you do not want to set up your own budget format, there are many styles of budget worksheets available online as well as in various financial planning books to help you itemize and record your financial information.
Use the amount of your net (take-home) pay for your budgeting and not your gross (before taxes) income amount.
Compare your total net monthly income to your total monthly expenses to identify your cash flow status.
If you are self-employed, remember to include quarterly estimated tax payments.
If you typically receive a very large tax refund every year (over $1,500), you may be able to reduce your tax withholdings to have more income throughout the tax year. You would then receive a smaller refund after filing your tax return.
Look at your budget in terms of both monthly and yearly spending patterns. For example, seasonal heating or cooling expenses may put extra strain on your budget during certain times of the year.
Consider your budget as an itemized prediction of income and expenses for a specified period.
Decide whether you want or need to change spending habits. If you have enough income to meet required expenses, your budget may still help you see ways that you can redirect spending priorities.
Keep in mind the following percentage amounts that are generally recommended for a personal spending plan:
Keep track of checking, savings, credit card and other investment account information and activity. Financial software may be a useful tool for this. Some credit card companies offer a year-end summary of your card expenses. This is another way to track where you spent money throughout the past year.
- List of all income sources that are available to you, including salary or wages from employment, Social Security benefits, retirement income, investment income, and money gained through an inheritance or trust.
- Budget categories that reflect your total monthly expenses.
- Fixed expenses or those that do not vary much each month, including mortgage or rent housing costs, loan payments, insurance premiums, property taxes, and federal and state income taxes.
- Variable expenses or those that vary every month, including food, dental and medical expenses, maintenance and repairs of home and vehicles, home utilities and transportation expenses.
- An amount of money that will be used for savings or investments in your budget. Even if it is a very small amount, you will be taking a step towards building funds for your future.
- Money to be used for clothing, travel, entertainment and hobbies. During this process, pay attention to things for which you spend money but may not need, such as specialty coffee beverages, dining out and books.
- Investment income to build security for your future. For example, savings, retirement plans, the purchase of real property and other ways to invest.
If you do not want to set up your own budget format, there are many styles of budget worksheets available online as well as in various financial planning books to help you itemize and record your financial information.
Use the amount of your net (take-home) pay for your budgeting and not your gross (before taxes) income amount.
Compare your total net monthly income to your total monthly expenses to identify your cash flow status.
If you are self-employed, remember to include quarterly estimated tax payments.
If you typically receive a very large tax refund every year (over $1,500), you may be able to reduce your tax withholdings to have more income throughout the tax year. You would then receive a smaller refund after filing your tax return.
Look at your budget in terms of both monthly and yearly spending patterns. For example, seasonal heating or cooling expenses may put extra strain on your budget during certain times of the year.
Consider your budget as an itemized prediction of income and expenses for a specified period.
Decide whether you want or need to change spending habits. If you have enough income to meet required expenses, your budget may still help you see ways that you can redirect spending priorities.
Keep in mind the following percentage amounts that are generally recommended for a personal spending plan:
- Housing and debt – 30%
- Taxes – 25%
- Household costs – 24%
- Savings – 15%
- Insurance – 4%
- Transportation – 2%
Keep track of checking, savings, credit card and other investment account information and activity. Financial software may be a useful tool for this. Some credit card companies offer a year-end summary of your card expenses. This is another way to track where you spent money throughout the past year.
