To make a budget plan, you need to determine your income and expenditures during a certain time period, such as for one week or one month. A monthly budget plan is usually easier to track because bills often come monthly. Determine your income for that period of time and set a certain amount of money to spend on any one expense item. As you earn and spend your money, track your actual cash flows against the budget.
When making a monthly budget plan, use a piece of paper or a spreadsheet software to record your income for the previous month. Include your salary, any bonuses, income from investments, interest income, and any other income source. Work out your take home pay after deducting income taxes.
Gather your utility bills, invoices, credit card statements, and bank account statements. As accurately as you can, record all your expenses for the previous month and divide them into two categories: non-discretionary expenses and discretionary expenses. Non-discretionary expenses refer to those that are necessary; this may include rent or mortgage payments, insurance, utilities, and loan repayments. Discretionary expenses refer to items you can do without, such as entertainment and dining out. Add up all these figures to get a rough estimate of your expenses for the previous month.
Take some time to analyze every expense item in your budget and consider whether you have any unnecessary spending that you can cut down on. For example, you might be able to downgrade your cable subscription because you never watch some channels, or start to exclusively use cell phones and cancel your home phone line. Be careful not to make too many extreme changes that you will not be able to maintain in the long term.
Based on last month's incomes and expenses, write down an amount that you would like to earn and spend during the following month for each category. If you can find last year's utility bills, use them to estimate the amount you will need to pay next month because the cost of utilities often follows an annual pattern. During the next month, sit down and record your expenses on the budget plan at the end of every day. You can create new categories as you go if any expense item does not fit into the budget plan.
At the end of the month, calculate the difference between your planned budget plan and your actual cash flow. You can use pens or highlighters with different colors to identify the categories where you meet your budget and the categories where you overspend. Review the budget plan and make any changes for next month's budget based on your financial behavior and estimates for next month's cash flow.
