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Where Does Your Money Go?

Ever wonder where your hard-earned money goes each month? You can find out by simply organizing your finances through a budget.

Creating and managing a budget is the cornerstone of good financial health. It's a step-by-step planning process that puts you in control and allows you to better manage your finances. You'll know exactly where your money goes each month. If you think budgeting means depriving yourself, think again! A budget is simply an organizational tool that helps you monitor your spending habits and is indispensable for getting out of debt. For a discussion of family budget expenses in terms of percentage of income, see the article Family Budget Example.

Examining Your Expenses

There's no way to create a budget without first looking at where your money goes each month. This can be a daunting task, so it's a good idea to break it up into manageable pieces. First, examine your expenses over the past two or three months. The best way to do this is to look at your:

  • Checkbook register
  • Receipts
  • Statements

Second, sort your monthly expenses by category. If an expense is not monthly, be sure to convert it to a monthly expense. For example, if you pay insurance quarterly, divide your quarterly bill by three to get the monthly amount. To meet your specific household needs, you may need to add to or delete from the categories suggested below:

  • Cable or satellite
  • Car payment
  • Child care or support
  • Clothing
  • Credit card payments
  • Donations
  • Dining out
  • Education
  • Electric and/or gas
  • Entertainment
  • Gasoline and tolls
  • Groceries
  • Heating oil
  • Household products
  • Insurance
  • Internet service
  • Loan payments
  • Medical
  • Mortgage or rent
  • Pet care
  • Savings
  • Storage
  • Telephone
  • Trash removal
  • Water and sewage

Third, track your current expenses for one month. Use a notebook and write down every penny you spend over the next 30 days. If you buy a cup of coffee on your way to work, write it down. If you buy a candy bar for a late afternoon snack, write it down. This can be somewhat cumbersome, but you'll learn valuable information about where your money goes. You may not even realize how much money you're spending. You'll probably have ideas on how to reduce your spending just from looking at this information.

Understanding Your Income

Budgets not only include monthly expense information, they also include your monthly income. For the purposes of a budget, you should look at your take-home pay (net pay) instead of your actual salary (gross pay). If you get paid every other week, multiply your take home pay by 26 and divide by 12 to get a monthly amount. If you get paid every week, multiply your take home pay by 52 and divide by 12 to get a monthly amount. Sources of income include:

  • Salary and wages
  • Bonuses, tips, and commission
  • Child support and alimony
  • Interest and dividends
  • Social Security
  • Pensions and profit sharing
  • Rental income
  • Public assistance
  • Unemployment and disability

What's Next?

You now have the basic information necessary to create your budget. If you'd rather not waste a lot of paper, check out our online budgeting tool. You'll be able to enter all your income and expense information in an easy to follow format.

After you've recorded your information in the online budget, the next step is to compare your income and your expenses. Add up your monthly income and add up your monthly expenses. If your income is greater than your expenses, you have a surplus that can be used to pay down existing debt or used for savings. If your income is less than your expenses, you have a deficit. Don't be alarmed. Debt help is just a click away. The other articles in this series will help you explore options for reducing expenses and building a realistic budget. If you are really having difficulties, click on Start Now to find out how this may help you.

Remember, creating and managing a budget plays a crucial part in assuring your financial health and seeing that all of your financial goals are met. Why wait any longer? Spend this weekend sorting through your financial records and begin planning how you'll spend your money.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.

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