Evaluating Your Monthly BudgetSeveral factors should be used when evaluating your monthly budget. One of the most important is the difference between your income and expenses. Income: Your budget should include all of your present sources of income. Use the most realistic estimate of what you will earn. Extra money, such as overtime pay, should be included cautiously because you risk overstating your income if it can’t be quantified in advance. You should include additional money you receive on a regular basis such as child support, alimony, trust payments, dividends, insurance, pension, or public benefits. Expenses: Your expenses should include all of your expected monthly spending including food, rent or mortgage, utilities, clothing, transportation, entertainment, medical, etc. Computing the true cost in each expense category is often difficult. Take extra time to be as accurate as possible. After reviewing your expenses, look for ways to minimize unnecessary expenses such as dining out, department store shopping, or entertainment. Your expenses should include insurance, medical or legal expenses, and deductions for investments or savings.
Assessing Your Financial SituationAfter you have reviewed your income and expenses, you will have a detailed summary of your available income after expenses. You will either have enough income to meet expenses (a balanced budget) or not enough. If you do not have a balanced budget, you will need to identify where you can increase income, cut expenses, or eliminate wasteful spending habits.
Suggested Guidelines for Monthly ExpensesWe recommend you review these expense guidelines and compare them to your monthly expenses.
- Housing 35%: Monthly payments (rent, mortgage, taxes, repairs, improvements, insurance, and utilities).
- Transportation 20%: Monthly payments (gas, oil, repairs, insurance, parking, or public transportation).
- Debt 15%: Monthly payments (credit cards, personal loans, student loans, and other debt payments).
- Other Expenses 20%: Monthly payments (groceries, medical bills, prescriptions, clothing, or personal items).
- Savings & Investments 10%: Monthly contributions to retirement or investment portfolios or savings accounts.