10 Absolutely Accurate Steps to Setting up a Personal Budget.

10 Absolutely Accurate Steps to Setting up a Personal Budget.

According to the Social Security Administration: “ASEC's 2000 Retirement Confidence Survey reveals that 45% of American workers have not tried to calculate how much money they will need to save for a comfortable retirement. In addition, 69% of savers say they could save an additional $20 per week. "Americans need to be active participants in their financial future," commented Commissioner Apfel. "We want to help everyone make informed choices with their money and encourage all workers to begin saving today."

In addition, with the current economic situation many households find themselves in the situation of having too many bills and not enough income. As a result, many people think to borrow money, typically on credit cards, to account for the difference.

Budgeting your household bills can help you begin to save for your retirement.  This article will help you understand your household cash flow and adjust your spending to avoid taking on any additional debt. The goal is to create a budget, where all of the expenditures and bills are less than the amount of income you make.

Lets get started:

Step 1: Income

What is your income? Calculate your net monthly income. Gather your pay stubs from the past three months and look for the net pay, or the amount of the paycheck after taxes and deductions. Add up the net pay on all of these checks and divide by three to find your net monthly income.

Step 2: Bills

What are ALL your bills? Make a list of the necessary categories in which your household spends. These include rent or mortgage, utilities, car payments, car repairs, gasoline, groceries, insurance, student loans, credit card debt and any other necessary categories you can think of.

Step 3: Receipts

What did you spend money on the last 3 months? Gather all of your receipts and bills for at least the past three months.

Step 4: Spending

What is the average of your last 3 months spending? Calculate your average monthly spending in each of the categories you listed by adding the amount spent over three months in each category and dividing by three. If you spend in cash, estimate your spending in the category.

Step 5: Necessities

What are your necessities? Add up the total average monthly spending on your necessities and subtract this amount from your net monthly income.

Step 6:  Allocation

How are you allocating your resources? Allocate your remaining money into the other categories in which you would like to spend money. These include cell phone, cable, savings, entertainment, eating out, vacations, clothing, new furniture, home improvement, gifts, charitable donations and other personal luxuries.

Step 7: Tracking

Do you constantly run out of money? The next step is to track your spending for the next month to ensure you are sticking to your household budget. Whenever you make a purchase, decide what category it fits into and subtract the amount from what you had allocated for that category. When you run out of money in a category, stop spending. This discipline separates the rich from the poor!

Step 8: Adjust

Are you adjusting? Adjust your allocations after the first month if you find you ran out of money in a category. For example, you may choose to allocate less money for eating out so you have more money for new clothing purchases.

Step 9: Balances

Have you written down all the balances of the money you owe to others? Write down all the money that you owe on all of your loans include car balances, student loan balances etc. Make sure that you write down the entire payoff balances on all debts you owe to others.

Step 10: Determination

Are you determined to get your finances under control? Next to each of the balances write down the monthly payment that is associated with the loan.

This will give you a very real understanding of where you are currently! Knowing where you are starting is the first step in knowing where you are going.