The first step in creating a budget is to gather your financial information. You will need the following:

• Income
• Expenses

Regular Income items are paychecks, or other sources of income which repeat on a regular basis, like every month.

Irregular Income items are income which you get regularly, but not in a fixed amount. One possible source of Irregular Income would be profits from a small business.

I suggest you use a simple method of forecasting your irregular income, by averaging your last 12 months of irregular income. This will let you approximative what your income will be. You then put aside extra income above this amount to help cover the times when you bring in less.

The next step in the creation of a budget will be to gather, and organize your expenses. There are monthly expenses, and there are expenses which occur less frequently. Organize all of these into categories.

When it comes to bills which reappear less than every full month make a decision, on if you are going to budget a monthly amount for them, or make a special budget for those months.

Some possible expenses are:

• Housing and Utility Expenses
  • Mortgage payment or rent
  • Insurance
  • Taxes
  • Electric
  • Natural gas
  • Water
  • Garbage pick-up
• Common Household Expenses
  • Groceries
  • Cleaning supplies
  • Laundry
  • Dry cleaning
  • Home improvement projects
  • Towels, linens, etc.
  • Clothing
• Transportation
  • Car payments
  • Insurance
  • Gas
  • Routine Maintenance
  • Repairs
  • Air travel
  • Rental cars
  • Public transportation
• Entertainment
  • Cable TV or satellite service
  • Dining out
  • Sporting events
  • Lessons and recitals
  • Clubs
• Communication
  • Telephone
  • Internet access
  • Cellular phone
  • Voice mail, etc.
• Health and Beauty
  • Hair cuts, perms, etc.
  • Make-up
  • Medical, dental, vision
  • Perscriptions
  • Weight loss, diet products
  • Nutritional supplements
• Debt
  • Credit Card Payments
  • Loans Payments
• Other Possible Items
  • Child care
  • Items for baby/elderly
  • Allowances for children
  • Book clubs, magazines, music, etc.
  • Fast food
  • Investments
  • Vacation
  • Spending money
  • Donations to church or charity
  • Gifts (Christmas, birthdays, anniversary, etc.)
  • Emergency fund
  • Coffee, soda, cigarettes, etc.

Now, add all income items together, and add all expense items together.

Now subtract expenses from income. If there is a positive amount, or zero left you are done!

If there is a negative amount left you need to drop some expenses quick. Some quick items you can usually drop are:

• Internet
• Cable/Satellite TV
• Anything which is not a necessity

Remember, you need to review your budget. Every month at the least, or every pay day. This lets your budget be responsive to your changing financial situation.

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Related posts:

1. Keep-It-Simple Financial Planning (Part One)
2. Keep-It-Simple Financial Planning (Part Two)
3. Keep-It-Simple Financial Planning (Part 3) Expanded