Building a Budget for Easy Money Management

By: Horizon Bank Last Updated: September 20, 2012

budgetBuilding a budget, especially when dealing with multiple credit/debt/income sources, can seem like an uphill battle. Don’t fret! Minor planning can go a long way, and we’re here to help you get started.

Create a spending plan
Where’s your money going? If you have trouble keeping up, perhaps it’s time to create a rudimentary plan to track your expenditures. We’ll walk you through the first few steps to make it happen. Here’s a basic budget worksheet to help you get started.

1. Determine your total earnings
Start small. Look at your total gross income over a period of a single week or month, and tally it out. If you’re using the budget worksheet, add your totals to the “gross income” section.

2. Assess expenses
What expenditures do you have during the same time period? Record your total bill, payment and purchase amounts.

3. Determine net income
Subtract your expenses from your earnings. Here you’ll find net income.

4. Account for unforeseen expenditures
Begin forecasting by allowing yourself a cushion for spending.

Budgeting after-tax income
So now you’ve got a rough estimate of where your money is going, but perhaps you’d like a more detailed overview of your financial health. Some financial analysts suggest the 50/30/20 rule on after-tax income. Let’s take the next step and begin analyzing your money management.

Spend 50% on must-haves
Ensure that “must-have” expenses (food, shelter, necessary bills) do not total more than 50% of your after-tax income. In some cases, necessary payments can exceed 50% of income. It may be time to reallocate spending. It may take time and sacrifice, but reducing this ratio is important for a balanced budget. We’ve outlined several necessary payments in our budget worksheet.

Spend 30% on wants
Self-explanatory, though it’s important to note that some recurring bills (gym or club memberships, for example) can be considered “wants.” Spending 30% on wants may not be possible on many budgets; however, it is important to invest time and resources on yourself to be happy.

Allocate 20% for savings/debt repayment
The remainder of your after-tax income is free for savings and/or debt repayment.

Note: These figures can be reallocated if debt payments are substantial.

Looking for additional financial advice? Visit Horizon Bank online now and contact us today.