1. Finding out your monthly take-home pay.

Your income is your pay, after some money is deducted. Think taxes, insurance and Social Security. Answer the following questions:

• What is your monthly take-home pay?
• Do other people share expenses in your home?

As mentioned before, total all of the households’ monthly take-home pay. This will include all sources of income for all contributing members of the household.

2. Finding out what your expenses are.

This brings up other pressing questions:

• What are your monthly expenses?
• Where does the money in fact go every month?

Most people are surprised to learn that it may go for things that you do not need at all. Writing your expenditures down provides you with the unique opportunity to visualize and find out if any money goes for things that you do not need or want.

Here is a short list of expenses that many people have. Put a check mark next to ones you have, then write down any expenses you have, that are not on the list.

• Necessities like food
• Clothes laundry dry-cleaning
• Car and transportation expenses: gas, oil, parking, license, plates, car repair, train fare or bus fare
• Rent, mortgage payments, heat, electricity, phone, water, property taxes, house repair, appliance and repair, furniture, small items for home, cleaning supplies on the yard care,
• Medical and dental expenses: doctor, dentist, drugs, hospital or clinic.
• Savings: short to medium term for something soon, a future purchase, emergencies, investments.
• Installment payments: car, furniture, appliances, charge accounts, credit card accounts, loans.
• Pocket money, personal allowances, tobacco, beer, wine and hair care.
• Entertainment, movies and eating out Recreation, sports and equipment, club membership, newspaper, magazines, cable TV, records and tapes, DVDs videos and other multimedia, vacation, letters and postage.
• School bills, books, room and board at school, workshops, special training courses, lessons, music and more.
• Donations: church or synagogue, charitable giving, charities, other and gifts
• Insurance: (if not deducted from your pay check): life, health, house, car and property
• Taxes: (if not deducted from your pay check): Federal, state and local income, social security

What other ones could you list?

3. Finding out how much you actually spend on each expense.

This is the hard part, where some thought and effort will have to go into the process to ensure the most accurate information is recorded. This will give a realistic and real-time estimate that is reliable and accurate.

Here you need to ask yourself how much each item on your list actually costs how much each item costs you a month.

The following estimates and guidelines could prove helpful to you as you set up your budget:

• Monthly bills that stay the same – car and rental payments
• Monthly bills that change – utilities, phones and more. Find costs per month for say six months, add them up. Take this number you have calculated and divide it by six (the amount of months) to get your average cost. This is the number you will be using for your budgetary exercise.
• Bills that come every three or six months – the number for every month will be used in your budgetary process.
• Bills that come annually, meaning once a year – divide the amount by 12 months. The answer is your monthly budget number.
• Bills that come more than once a month – food, gas, lunch and family fun. This is a category to watch very closely, as it is a contributor to this “bottomless pit”, we sometimes feel and see our cash disappear into.
• Unexpected expenditures or surprise bills – what you can afford to set aside as a buffer or emergency, contingency fund - (look at the last three years or so and see what kind of unexpected expenses you and your family faced). Use an estimate that makes sense to you and divide the annual number by twelve months to get your monthly number.