A budget is a financial plan that identifies intended expenditures and proposes how those expenses will be met with available resources. It may also express a surplus, providing funds beyond expenses for saving or investment, or it may show a deficit (expenses exceed income).
To create your own personal budget, start by determining how much money you bring in each month. Add up all sources of income, including wages, salaries, tips, Social Security or disability benefits, alimony, investments and any other regular income. Then subtract your total monthly expenses, which should include fixed items such as rent or a mortgage, utilities and cell phone service, and variable spending such as groceries, clothes and entertainment. You can estimate these items by looking at past credit card or bank statements, or using a budgeting app or spreadsheet.
After estimating your expenses, allocate funds to high, medium and low priority categories. High priority items are those that you must spend money on, such as your monthly bills. Medium priority items are things you might need to buy occasionally, such as gas or groceries. Low priority items are those that you don’t really need, but might enjoy spending money on, such as a new pair of shoes or tickets to a concert.
Once you have a handle on your expenses, review them regularly and make adjustments as needed. For instance, if you’re finding that your expenses are higher than expected, consider ways to decrease them, such as buying less expensive items or eating out less frequently. Or, if you’re not making enough money to cover your expenses, consider working overtime or getting a second job.