Contributed by Tanya Schiavone

Budget is such a nasty word. It conjures up all sorts of negative thoughts and feelings of restriction, deprivation and inadequacy.  But why do we consider looking at how we use our money as negative? In truth, taking control of our finances is one of the most positive things we can do.  After all, if we know how much we make and how much we spend, we know how much we can save and where we stand.

Setting up a budget can be done in three steps.

  • Necessary expenses. This includes overhead expenses such as rent, electricity, gas; minimum payments on credit cards and other debts; childcare, school costs, medical costs, or anything else you deem as necessary to live.
  • Savings. This varies based on your particular goals in life, but a good rule of thumb to use is, put 10% of your income towards savings.  If you have big goals you will need to adjust accordingly. For example, starting a business or buying a home requires more money than taking a vacation. So think about what your goals are. To make saving easy, you can have part of your paycheck automatically deposited into a savings account.
  • Debt repayment. In the necessary expenses section, minimum payments are suggested to maintain a favorable credit rating but in order to pay off debt you need to increase the amount you pay. Consider how much more you can add to each monthly payment so that you can pay off your debt.

Now you can calculate your discretionary income or the money that is left over to spend on whatever you would like:

Discretionary Income = Income – (Overhead + Savings + Debt Repayment)

If you find you have very little discretionary income, you can look at your necessary expenses and see if something can be cut.  If it is greater than you thought, you can put more into savings or debt repayment.

How do you keep on budget? We invite you to share your ideas in the comment box below.