Tips for Creating a Monthly Budget Template
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A monthly budget is a fundamental tool for understanding your household finances. By knowing exactly how much cash you have coming in, you can take control of your money and direct it to where you most need it. The budget tools in Quicken Starter Edition make creating a budget a breeze. Simply start by entering your monthly transactions — the software tracks your budget automatically.
To help get you started, Sean Stein-Smith, a New Jersey-based CPA, CGMA and member of the AICPA’s National CPA Financial Literacy Commission, recommends a five-point plan for tracking your monthly expenses.
- Set Your Goals
The first step Stein-Smith suggests is to "make a plan for your short, medium and long-term goals." For example, short-term goals include ensuring that your expenses don't exceed your income or beginning a systematic savings plan. Medium goals include eliminating credit card debt or having enough saved to take a family vacation. Long-term goals might include buying a house or having a comfortable retirement.
- Organize Fixed and Discretionary Expenses
Stein-Smith and many other financial experts agree that it helps to organize your expenses into two broad categories: Fixed expenses include rent or mortgage payments, car payments and any other expenses that are the same every month. Discretionary expenses are those that fluctuate, such as grocery bills and entertainment expenses.
To help track your expenses, Quicken Starter Edition includes several categories, or you can create your own, such as:
- Long-term savings
- Emergency fund
- Debt payments
- Personal care
- Examine Cash Flows
Once you have accounted for your current income sources and expenses, Stein-Smith advises that you "figure out how your cash inflows compare to your cash outflows." Ideally, your income should be greater than your expenses to give you a little wiggle room for unexpected costs that arise from month to month.
- Examine Payment Schedules
In addition to the amounts going in and out of your bank account, Stein-Smith says it's important to look at the timing of your payments compared to your check deposits. If your budget is tight and your rent payment goes out before your pay check is deposited, you may find yourself being charged an overdraft fee from your bank.
- Complete Your Budget
Once you have collected the necessary information, you can begin to "map out a budget based on reality," advises Stein-Smith. While monthly expenses vary based on your income and where you live, the Bureau of Labor Statistics has found that the average household's expenses are:
- Rent or mortgage payments: 19.6 percent
- Utilities and other household expenses: 13.7 percent
- Groceries: 7.4 percent
- Restaurants: 5.2 percent
- Transportation, including vehicle costs and gasoline: 17 percent
- Entertainment: 5.1 percent
- Clothing and personal care products: 4.5 percent
You can use these numbers as a rough guide for your own budget. For example, if you find that you are spending 20 percent of your income on restaurants, this might be a good category to start cutting down. As you continue to enter your expenses into Quicken Starter Edition, it tells you how your current expenses compare to the budget you have set. Use this tool to review your budget regularly and adjust it as needed to keep a firm grasp on your personal finances.