How to Prepare a Cash Budget

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A cash budget breaks down cash inflow and cash outflow during a period of usually a month. By creating a cash budget, you can see where you spend most of your money. This will help you cut unnecessary expenses. A cash budget will also show how much money you have at the end of the period to save or if you are losing money each month with your expenses.

Gather your receipts from the previous month. This includes items such as rent, food and credit card payments. Also find a copy of your paycheck and any other sources of income.

Sort through the receipts and take out any extraordinary costs. These are costs which are unusual and infrequent. For example, if you had to pay $500 to fix your car, then remove that receipt. Gather together similar costs; for example, all receipts for food should be together.

Add together all cash inflow. This will be your monthly pay and any other income, such as interest. For example, if you make $5,000 a month after taxes and also earn $50 a month in interest, then your total monthly income is $5,050.

Add together all cash outflow. For example, if in the past month you spent $150 on food, $700 on rent, $100 on utilities, $20 on credit card payments and $60 on gas, then your total monthly expenses were $1,030. Subtract $1,030 from $5,050 to get $4,020. Therefore, you have $4,020 of disposable income for the month.

Break down the disposable income from Step 4 into savings and a portion for emergencies. In addition, you can analyze your expenses and decide if there are places where you can reduce your spending. For example, you may find that you pay too much for gas and can decrease your expenditures by biking to work or that you pay too much for utilities and can cancel your cable television.