Set your goals
Ask yourself: What's important to me? What do I need? What do I want? If you're married, you and your spouse should discuss your answers and decide what your shared goals will be. Once you know what you want, you can begin to budget accordingly. Group your financial goals in to three areas:
Short-term goals: Those that you'll want to achieve in the next year or two.
Mid-term goals: Those that you’ll want to achieve in the next 2 to 5 years.
Long-term goals: Those that take more than 5 years to reach.
Pull together the records of all of your income and expenses: paycheck, checkbook, credit card and borrowing statements, financial statements from banks, etc. Be thorough and honest when estimating any expenses.
Find out where you stand
Use the information to figure out what your spending habits are right now. It may take a few months to find out exactly where you stand, but the first time should give you a good idea. Organize your information into three sections:
What you earn: Add your income from various sources, including "take-home pay" after taxes, commissions or bonuses, dividends, etc.
What you spend: Add your fixed and variable expenses. Fixed expenses are those that don't change every month and usually cannot be eliminated, such as rent, mortgage, insurance, borrowing payments, etc. Variables expenses are those that change and could be reduced or eliminated, such as cable television, groceries, gas, telephone, etc.
The bottom line: Subtract total expenses from total income. The amount left is your "discretionary income". You can use this money for emergencies and meeting budget goals.
Check your bottom line
You bottom line is the difference between what you earn and what you spend. It's a clear way to know if you're spending too much.
If the figure is positive: Consider increasing the amount you pay toward debt or adding more to your savings.
If the figure is negative: You are spending more than you earn and probably financing the deficit with credit.
Keep track of expenses
After you do your first budget calculation, start keeping a monthly expense record. Even if your bottom line is positive, it's still important to learn everything you can about how you spend.
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