Construct Your Budget

Budgeting doesn’t mean you have to give up your favorite things. It’s about being clear on your expenses and making smart decisions.

A budget is a plan for managing your money so that you can pay your bills and daily expenses, save for unexpected expenses, and achieve future financial goals (like college).

There are three types of expenses:

Fixed expenses – A fixed expense is a cost that does not change from month to month. It’s a necessary expense that occurs regularly that you can’t really control.  For example, rent and car payments are fixed expenses – you have to pay a set amount each month.

  • Paid on a regular basis
  • Doesn’t change from month to month
  • Examples: rent, car payment

Flexible Expenses – Flexible expenses may also occur regularly but they’re expenses where you have some control over the amount.  An example would be buying groceries.  Using coupons or choosing a less expensive brand will save on your grocery bill – you have some control over the amount you spend.

  • May occur regularly
  • You have some control over the amount
  • Examples: electricity, groceries

Discretionary Expenses – A discretionary expense is not a necessary expense. It’s money that you choose to spend, like going to a movie, buying a video game, or even money you put in a savings account.

  • You choose to have the expense
  • You control the amount
  • Examples: CDs, movies, or money that you save

So, with that information, it’s time to create your budget:

Step 1: Add up your income – List all the money you have coming in on a regular basis, then total it.

Step 2: Estimate your expenses – Make categories for each of your expenses and write down the amount you spend each month. Below is a sample budget worksheet.  The worksheet is broken into fixed, flexible, and discretionary expenses to make it easier to see which expenses you can adjust.

Step 3: Total your expenses and subtract it from your income – If your expenses total more than your income, go back and adjust some of your flexible and discretionary expenses. Or look for ways to increase your income until your expenses and income are aligned. If your income is larger, consider adding more to your savings so you can reach your goals a little faster!

The important thing is to be realistic and create a budget you can live with. Your budget is not set in stone, so review it every month and adjust it to fit your life as it changes. With a budget, you’ll have your financial act together, make smarter choices, and really get ahead!