Budgeting Begins With Your Past

The best budgets are a realistic and accurate representation of your personal finances. That means that you need to plan your budget around a reasonably complete picture of what you earn and what you spend. If you budget to spend $200 a month on groceries and you are much more likely to spend $300, your budget will never work no matter how hard you try.

how to budget monthly expensesYour budget is a written plan of how to spend your money to meet your financial goals. To be successful you need to create a solid projection of both your income and your expenses. When planning how to budget your monthly expenses, the best place to start is with a good understanding of how you have been spending your money up until now. The picture may not be pretty but that doesn’t matter. Knowing where you are today will help you find ways to make changes so you can improve your situation.

Here are some tips on how you can figure out where your money goes now so you can build a better budget for the future.

Use A Budget Worksheet

You need somewhere to record your results. You can use any of several online and mobile app budgeting tools or you can download our Free Budgeting Worksheet.

Track Your Spending

To begin you will need to record all your daily expenses. Since most people can’t recall everything they spend money on in a month, we recommend that you keep a 30 Day Spending Journal. It’s important to include everything you spend money on, even the little things like your morning coffee, newspapers, and other incidentals.

You should plan to spend at least a month exploring your past spending habits. The more history you have, the more accurate your projections will be. The more detailed your expenses, the easier it will be for you to find areas to cut back and save.

Pull Out Your Statements

Your 30 Day Spending Journal will cover off all those items you buy on the go. But for the bigger, more regular expenses you need to take a look at your credit card statements, utility bills and bank statements for the past year. Here is where you will find out what you spend on your rent or mortgage, car payments, utilities, insurance, property taxes and all your other living expenses.

Keep a separate list of who you owe money too, your monthly debt payments and any automatic savings deductions as you will need these to create your budget projections as well.

Find All Your Income Sources

If your only source of income is your job, estimating your income is fairly easy. You can start with your most recent T4 but since deductions and income can change, it’s better to try and look back a few months. If you don’t have copies of your T4’s, talk to your employer. They may be able to provide you with a statement of your earnings for the past year.

When it comes to overtime and bonuses, include what you can reasonably count on. Don’t overestimate. If you are self-employed or your income fluctuates, budget on the low side. You want to avoid any negative surprises. It’s better to have a surplus at the end of every month than to scramble to make ends meet.

Include all your family income. You should create one combined family budget. If you budget separately you are more likely to argue over money and priorities, making it hard to achieve goals that will work for everyone.

Build A Realistic Budget

Once your historical information has been assembled and recorded, you can begin to analyze your income and expenses for necessary changes and construct a realistic budget. By basing your budget on an accurate foundation, you will be well on your way to solving your money problems and building a stronger financial future, debt free and with more savings in the bank.

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