The 5 Minute Budget

One of the most important financial tools one can use is the budget. Budgets might sound to economic novices as pretty technical stuff; however a budget is an extremely practical tool that almost anyone can create in about 5 minutes. Here are some tips.

While in theory, you can create a budget in about 5 minutes, there is no need to rush it. Budgets are exceptionally simple to create; all you need are the following items;

one piece of paper
a pencil
a calculator

That's it. On your piece of paper, you will want to create two columns. The first column should be called Income and the second column should be called Expenses.

The Income Column

Within your income column, you will want to list all sources of revenue. Most people usually list their revenue in a time frame of one month. However, if you receive income that is not regular- such as a once a year payment, you may want to opt for creating budget using a timetable of one year. For those creating a budget with a time frame of one month, list each one of your sources of income. Obviously, they will include your main job's income and income from a part time job. Other items you should list under income are products that you sell on Ebay or income from web sites. If you receive rent from a property you own, this should be listed as well and you should definitely list any income you earn from interest on money in the bank or stock dividends. Once you have listed all your income for the month, create a new row and calculate the total income for the month.

The Expenses Column

While you may only have one or two sources of income each month, you will definitely have a lot more expenses. Expenses are anything you spend your money on. This can include your mortgage payment, car loan, insurance, lunch, transportation, electricity bill, cable bill, any purchases you make on a regular basis such as coffee in the morning, etc. Make sure that you try to think of all the expenses you have each month. Many people even carry around a small book recording all their expenses for a week, just to see what they really spend their money on. Once you have listed all your expenses, create a new row and calculate the total amount of expenses.

Compare Your Income Column to Your Expenses Column

Now compare the totals of each column to each other. If your income is more than your expenses, you are in good shape and any extra money can be saved. However, if your expenses are more than your income, you are in a lot of danger and are probably in debt. Make sure you cut down some expenses to balance out your budget. You can do this by looking carefully at the money you spend each month and figure out which items should be cut. You should also look at ways to increase your income as well.