The spend principle of the MyMoney Five is centered around the concept of knowing how much money you have to spend each month and where your money is going. To master the spend principle, you must be able to make a budget or a spending plan in order to use your month wisely. Developing and utilizing a budget will help you set and achieve short-term and long-term financial goals. A budget allows you to compare your expenses with your income.
How to create a budget
Here are some easy steps on how to create a budget. A template is provide to you in the right-hand sidebar.
- Gather every financial statement you can in order to determine your monthly expenses and income.
- Determine what income you have on a monthly basis. Knowing how much money you have on a monthly basis will help you determine your monthly budget. An example of income would be your paycheck from your employer.
- Know your monthly expenses - Expenses can be divided into two categories: fixed expenses and variable expenses. Fixed expenses are constant and reoccur each month, while variable expenses vary in amount and frequency. An example of a fixed expense is your monthly rent or loan payment and an example of a variable expense is your electricity bill or monthly groceries. All expenses should fall into one of these two categories.
- Create a list of your monthly expenses and group them under fixed or variable.
- Total your monthly income and your monthly expenses.
- Review your budget to determine if your expenses exceed your income.
- Make adjustments to expenses and/or income
- Double check your income and expenses to make sure they are accurate.
- If your monthly expenses exceed your monthly income, you should review your variable expenses to find areas to reduce.
- If you can not reduce any of your expenses, you should review your income and determine if you have enough income for your current level of expenses.
- BE HONEST WITH YOURSELF. Being honest with yourself when creating your monthly budget will help you create an accurate budget. Not accurately recording your monthly expenses will skew your budget and your goals.
Online Budgeting Tools
There are several online budgeting tools to help you review and create your monthly budget. The first and most important factor to consider when selecting an online budget tool is security. It is recommended that you pick a secure website if you are providing any personal information. Most online budgeting tools will state their security measures on their website. If you do not feel safe in giving your financial information to any website, do not use it.