There is a variety of budgeting software available online, some of which is free. But in today’s modern family, the best way to construct your budget is to simply look at the things you purchase or pay for with checks and charge cards. It’s not the best way to begin creating a budget, but for many it’s the best place to start.
Most budgetary items are monthly, some quarterly and others semi-annually. Most income is bi-monthly, so the goal is to split your monthly expenses evenly between the first and latter half of the month. Hopefully this will create less pressure on your cash flow. Many graduates from high school and college are shell shocked when they receive their first paycheck and notice their net proceeds are far less than they anticipated, so a budget is determinate on the net proceeds not the gross. You may want to consider increasing your exemptions to a point that you have no refund, but you do have increased cash flow. There are basically three budget categories: Essentials, Savings, and Discretionary.
Essentials Expenses are the obligations of life: housing, utilities, food, medical, transportation, clothing and basic education costs from kindergarten to senior year in high school. You also need (and in some states require) insurance on your home, car and on the life of the breadwinner(s). If you’re developing your budget and you’re in debt, you need to begin paying down the highest interest rates first and have no discretionary spending until your debt is paid off.
Savings have four sub categories. First create an emergency fund for medical, home and auto deductibles. Second create a fund for scheduled repairs on your home and autos. Third, create a savings account for a down payment on a car or home, future college tuition for your children and retirement for yourself. Fourth, create a birthday and holiday fund for the family.
Discretionary spending is eating out, going on vacation, and spending on things you want, but don’t need. Discretionary money is based on actual cash in hand, not in creating debt by charging things on a card.
A budget is always necessary, especially in retirement when income is generally fixed and there is less of it. Without the discipline of a budget, you’ll never have the necessities for an enjoyable retirement or a legacy to pass on to your children.