Developing a budget can actually increase income

It might seem that developing a budget should be an elementary task. But many people are simply not inclined to use spreadsheets, balance checkbooks or lay out a formal budget. Whether by nature, or as a result of a reaction to public school mathematics training, some people just aren’t ‘number people’.

But everyone will find it in their self-interest to make the effort to outline their expenses against income even if it requires getting someone else to help undertake the task. The budget should include monthly income and outgo, projections of expected increases and decreases and some buffer for the unexpected.

If you feel uncomfortable using spreadsheet software – which is available for free these days either through Open Office ( or Google Docs & Spreadsheets ( – at least jot down some figures on a legal-sized pad.

Divide the spreadsheet or page into two columns. In one, list income, in the other write down all monthly costs. In the costs column include all major regular bills, groceries, gasoline, etc. Then add at least 10% for unexpected expenses, if you can.

Now, for an important add-on task that too few undertake: project different scenarios. Make another budget (an imaginary one) that shows monthly costs, income and the difference between the two… except:

Exclude monthly credit card interest amounts. Exclude auto loan interest. Exclude 25% of any ‘impulse buy’ amounts. Then sum the total of those three.

These three represent the amount you could conceivably avoid paying every month. If the total is even as low as 10% of your monthly expenses (and for some it’s higher), you are paying a substantial amount of your income to charges that could be avoided.

No one but you, being as realistic as possible, can decide whether that 10% overhead you pay is worth what you get in return – having certain items earlier than you would by saving for them. But, consider this: saving that 10% APR paid on $2,000 for one year is:  $110. And many people pay only the minimum monthly payment, which amounts to much more. That’s $110 you are paying solely to have something costing $2,000 a year earlier.

Only you can decide which is worth more to you, but developing a budget will help you make those decisions rationally.