Creating a Budget -- Step 5: Defining Budget Amounts

Before we discuss the last step in creating a budget, letʻs review what we have covered so far: 

Step 1 (Part I) : Tracking Fixed and Fixed-Variable Expenses

Step 1 (PartII) : Tracking Variable Expenses

Step 2 : Tracking Income

Step 3: Comparing Income: Expenses

Step 4: Trimming the Fat

Now you are ready to move on the final step of creating a budget: 

Step 5: Defining Budget Amounts

In this step, we will use the information that we tracked and discussed in Steps 1-4 to set-up your budget amounts for the month. 

I find it easiest to use the amounts from the previous month as a starting point. When you start following your budget you can adjust the categories as you see fit. If you donʻt spend all that you budgeted in a particular category for that month, consider taking a little bit from that budget category to another that you could use a little wiggle room. 

If you discovered that you are spending more than your income, (Your Bottom Line Amount in Step 3 was in the negative) then use the reflections and assessments you made in Step 4 to assign reasonable amounts to those categories. 

Below is an example of what assigning amounts to budget categories might look like. For the most part, the amounts from the previous month were carried over into the budget amounts. Budget amounts that were adjusted are noted with a number. These new budget amounts accomodate for 60-70% of the previous months amounts. 

By cutting amounts for the notated categories, by following this budget there will now be a positive amount of money left each month instead of being in the hole and having to resort to the use of credit cards or not being able to pay your important bills. In this example, this family should have an extra $400 left at the end of the month. Thatʻs $4,800 a year. What could your family do with an extra $400 a month? 

Now that you know how much money you have to alloted to spend on specific categories, action needs to be brought to this budget. 

Next Blog Topic: Following a Budget

Congratulations! You have created a budget. 

Please feel free to contact me at saydeepojas@gmail.com for questions or help on creating a budget.