How to Create a Budget
Step 3: The Balancing Act

This step in learning how to create a budget is short and sweet!

Add up all of your sources of income and then write your monthly income amount in the space marked “monthly income.”

If you’re like most people, you have just one source of income, or possibly more if you’re creating a household budget. Financial experts agree that it is important to your financial security to have more than one source of income so you are not at the mercy of one company, or one boss – or even your own one body – for your entire livelihood. This is especially true in today’s uncertain economy.

Not to worry – I wouldn’t teach you how to create a budget without also giving you some tools to help generate additional income. We’ll talk about how to do that later in Creative Ways to Make Money.

For now, we’ll focus on your current income. Be sure to use your take-home amount – the actual amount on your check after deductions. If you get paid hourly and your paycheck amount varies from check-to-check, use one of your lower checks to calculate your income. Being conservative when preparing a budget is always the best plan. If you base your income on your higher checks you could be planning on more income than you will actually earn which will be a real problem later. Much better to reverse that and earn more than you planned on!

You’ve done a great job up to this point with the worksheet. Now that you’re on step three, you’re at the moment of truth. Are you ready?

Subtract your total monthly expenses
from your total monthly income.

How did it turn out? Do you have enough income to cover your monthly expenses or are you a little short?

If you found that you have income left over each month, that’s great! Learning how to create a budget is just that much easier when your income covers your expenses.

Do me a favor, though, and look over your expenses one more time. Be sure that you’ve captured everything, that the amounts are correct. Even double-check your calculations. Before we move on I want to be sure that your positive cash flow is really real!

Once you’ve done that you’re ready to make your budget a real part of your day-to-day life. Click here to move on to Living on a Budget.

If your expenses are higher than your income you’re probably discouraged right now, although probably not surprised. I’m guessing you probably had a gut feeling about it. I want to assure you that you are not alone – that many, many people are in this same situation. I know that hearing that doesn’t take the edge off of your discouragement, and I understand.

But I think I can help.

You might remember from the home page that I am a single mother who raised two kids on $20,000 a year. My expenses always out-numbered my income. Believe me, I was discouraged plenty of times. But because I learned at an early age how to create a budget, I had a life-line. I had a plan to keep me focused on what I could do, not on what I couldn’t do.

This very system I’m teaching you now helped me track and control every dime I took in and spent. This system got me through those incredibly tough years, and even better, I got through them without accumulating a pile of debt. Yes, it meant that I went without things that I wanted – in fact, some things I really wanted. But I figured that if I couldn’t pay all of my bills, it made zero sense to create new bills on purpose.

That choice allowed me to get my financial life back on track. If I had given in and used my credit cards whenever I wanted something, I’d still be struggling to pay them off. Instead I am debt-free except for the mortgage on my home. It’s a great feeling!

So, I know you’re discouraged now, but hang in with me. Continue working this system and it will help you, too.

Right now we’ve got a little work to do to prioritize and trim your expenses – the fourth step in the process of learning how to create a budget. So when you’re ready, click here and let's keep going.

Step 1: Identifying Your Expenses
Step 2: Turning Oranges into Apples

Step 4: Prioritize and Trim

Move on to Living on a Budget

Return from How to Create a Budget to Making a Budget

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