Developing a budget plan is just a matter of figuring out how much money you have available to spend each month and deciding where you want to spend it. Renowned financial author and radio talk show host Dave Ramsey explains that a budget is just spending your money on paper before you receive it. So instead of looking at your bank account and wondering where all the money went, you decide where you want it to go before you even receive it.
Write down the total amount of income you receive each month. Include net, after taxes take-home pay plus other regular income such as royalties and settlement payments. Don't count occasional income such as bonuses for regular budgeting purposes, because their inconsistency makes them unreliable for paying the day-to-day bills.
Subtract 10 percent of your total income, and write that down as savings. Ten percent is the minimum recommended for savings so adjust this higher if you're able. Savings funds help you pay for extras such as a vacation or the down payment on a home, and they're also critical for handling surprise expenses or emergencies.
List each fixed bill you have and its corresponding dollar amount. Fixed bills are those that stay the same each month such as rent, insurance and car payments.
Add the total of your fixed bills together then subtract that amount from the remaining 90 percent of your income.
List each variable spending obligation you have each month. Variable spending obligations are bills and expenses that must be paid but fluctuate in amounts. Common variable expenses include utility bills, food and transportation costs.
Write down an average, or estimate the amount of money needed for each variable spending obligation you have. Use previous bills and receipts if you have them, to create more accurate estimates.
Add together all variable expenses and subtract the total from the remainder of your income.
List discretionary spending areas such as clothing, entertainment, gifts and fun money. Distribute the remainder of your income among these categories as desired.
- Computer software can be helpful when planning or tracking a budget.
- "The Total Money Makeover: A Proven Plan for Financial Fitness"; Dave Ramsey; 2007
- New Mexico State University: Managing Your Money: Developing a Spending Plan
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