Creating a Monthly Budget - Why You Need One

Creating a monthly budget is something that most people never do. And that is one reason so many people have high debt loads today. By creating this budget, you have a much clearer understanding where all your money is going and if there are any areas in which you can cut back.

First, you must know what your monthly income is. From this, you must subtract all your normal monthly expenses. You should divide your expenses into essential ones and ones that could become optional if your financial situation dictated that you do so.

Essential items would include:

* food
* heating - natural gas, coal, oil or wood
* water
* power
* phone ( cell or landline - you may need both)
* rent or mortgage payments
* child care
* house insurance (if you pay annually then divide that amount by 12)
* vehicle insurance (if you pay annually then divide that amount by 12)
* vehicle registration
* life insurance (if you pay annually then divide that amount by 12)
* health insurance
* medications or other medical needs
* vehicle loan
* credit cards
* lines of credit
* student loan
* vehicle gas or other method of transport
* any other outstanding debt you have
* pet food and cat litter
* school fees
* clothing (I put this in essential because we can't go naked! But this can be adjusted downward, if required.)
* household such as light bulbs, cleaning supplies and laundry soap

Non-essential items would include:

* internet (though this may be essential and if it is one can always downgrade to the dreaded dial-up)
* satellite or cable TV
* entertainment such as movies, concerts or sporting events
* gym or sport membership and expenses
* items such as cigarettes and liquor
* retirement funds ( these really are essential but can be reduced in times of need)
* makeup
* restaurants

There are some expenses that will occur throughout the year and these must be calculated into your monthly budget. If you don't include these items, then your monthly budget will not reflect what you should be setting aside each month to meet these expenses. These items would include the following:

* house maintenance
* vehicle maintenance regular and unscheduled
* gifts for Christmas, birthdays or other occasions
* hair cuts/styling
* holidays
* any other activity you like to participate in such as hunting or skiing

Most people should have an idea of what they spend monthly. But once they put it into a budget they will see how easily income in goes out in expenses. If you don't really know how much you spend monthly, then look over monthly statements and bills. Start saving all receipts for food and other expenses and then add them up at the end of the month.

Obviously expenses will always fluctuate. Maybe you eat less in June than you do when Christmas arrives. But having your expenses out and income in on a sheet of paper will really help you realize your real financial situation and you can plan accordingly.