Video:How to Create a Frugal Budget

Transcript:How to Create a Frugal Budget

Hi, I'm Kaytie Sproul, here for about.com, and today I'm going to show you how to create a frugal budget, using information from About.com's Frugal Living site.

Whether you're trying to get out of debt, saving for a special occasion, or simply wanting to pinch pennies for a rainy day, knowing how much you spend on life's necessities and frivolities is essential to your success.

Tips for Creating a Frugal Budget

Consider the following: The first thing you want to do is gather up your bills, and grab a calculator, a pen or pencil, and a piece of paper or a budget form like this one. Begin by itemizing all of your regular monthly expenses, including anything you spend on entertainment, and minimum payments on debts. Keep in mind that some bills, like auto insurance, may be paid once annually, rather than monthly. If this is the case, take those annual amounts, divide them by 12, and include them accordingly as you budget.

More Tips for Creating a Frugal Budget

Next, you need to figure out your total monthly income; this could simply be your paycheck, but don't forget to include any income you receive from investments, alimony payments, or other allotments. At this point, you'll want to subtract your monthly expenses from your earnings. Doing this allows you to know how much you'll have left at the end of each month, or if there are major deficits in your budget that need reworking. Should the latter be the case, go back through your expenses and make cuts until your budget is balanced or in the black.

Things to Consider When You Create a Frugal Budget

As you're building or reworking your budget, keep in mind that being honest about your spending habits will provide a more realistic outlook. While you may feel inclined to cut out all entertainment if you find yourself in the red, giving yourself a modest allowance for fun and recreation is essential to your sanity. You also don't want to sacrifice your health when making budget cuts, so don't take away too much from your food expenses.

The frugal way to do it is to stop eating out, and plan a weekly menu at home, allowing two-to-three dollars per meal, per person. Living expenses will vary by city and state, so what's reasonable for one family may not be so for another. While necessity may dictate otherwise, a housing downgrade that is both feasible and safe could lead to tremendous savings.

Finally, always try to make room in your budget for the unexpected expenses of life, whether you're setting aside ten dollars a month, $100, or more. It may be a new radiator for your car or unforeseen medical costs, but having a back-up fund available could save you from having to max out your credit cards or taking out a high-interest personal loan, both of which should be avoided when trying to live on a frugal budget. When it comes to frugal budgeting, moderation – not deprivation – is key. Be mindful of your needs, versus your wants, and revise your budget frequently, allowing it to evolve when necessary.

Thanks for watching. To learn more, visit us on the web at About.com.