Budgeting in Six Easy Steps
Creating and sticking to a personal budget is a vital part of personal financial planning. Consumer Credit Counseling Service of Greater Washington offers an easy, six-step method for arriving at a budget you can live with:
- Step 1
- Determine your monthly income. Take into consideration your payroll deductions (health insurance or other group benefits, income taxes, union dues, pension) and other sources of income.
- Add together all income, less deductions. On a piece of paper record the resulting figure as VALUE A.
- Step 3
- The next step is to find your “discretionary income” by subtracting your total expenses (B) from your total net income (A).
- Write this number down on a piece of paper as VALUE C.
- Step 4
- List all unsecured debts (credit cards etc.), the monthly payments and the balances. If you don’t know your exact debt amount, now is the time to determine it.
- Record your monthly total as VALUE D and continue with the next step.
- Step 5
- Some of your discretionary income is committed to the installment debt listed above. Step 5 is to determine if you have any remaining discretionary income after making these installment payments by subtracting your total monthly payments to creditors (D) from your discretionary income (C).
- If this figure is a negative number, you are not ready for Step 6 – setting goals. Consult a personal financial counsellor and work on getting this figure into the positive numbers.
- Step 6
- It is now time to establish short- and long-term goals. Make a list of these goals, using these examples to help you get started.
Long-Term – Real Estate Purchases, Future Education, Retirement
Short-Term – Home Improvements, New Car, Travel
Other Desired Investments – Stocks, Bonds, CDs, Mutual Funds
- Once you have made a list, determine how much you need to save monthly by dividing the amount of money required to meet each goal by the number of months that you have available to save for it.
Look for more information on personal financial management at Consumer Credit Counseling Service of Greater Washington