What Are the Steps to Developing a Flexible Budget?

Families can save and invest using flexible budgeting.

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Families can use flexible budgets to get out of the feast-or-famine cycle. They are good for people with irregular income, such as the self-employed or those who work on commission. Traditional budgets assign a specific dollar amount to each spending category. A flexible budget uses percentages, helping to keep the bills paid during lean times. For example, a traditional budget might assign $150 weekly for groceries, while a flexible budget might allocate 15 percent of each week's income.

Step 1

List fixed expenses that you must pay every month: rent or mortgage, car payment, child care, insurance, loans, etc. Payments that recur monthly for the same amount are static.

Step 2

List expense categories where you have some control over the amount spent: utilities, food, transportation, clothing, entertainment, etc. This is the flexible part of your budget.

Step 3

Add savings as an expense category. If you usually have disposable income every month, then assign a dollar amount and put it in the static category. If you struggle to pay the bills some months, then list savings as a flexible expense.

Step 4

Add your various sources of income to arrive at a monthly estimate. For example, self-employed people might have several clients throughout the month. If you are not sure of the amount, you can get an estimate by looking at your income for the past 3 months.

Step 5

Calculate each fixed expense as a percentage of the monthly budget. For example, if your monthly income is $3,000 and the housing payment is $700, then housing consumes 23 percent of the budget.

Step 6

Examine your receipts or credit card statements to estimate how much money you usually spend in each of the flexible categories. Calculate each one into a percentage of your estimated monthly budget.

Step 7

Add the fixed expense and the flexible budget category percentages together. Calculate the total as a percentage of your estimated monthly income.

Step 8

Increase savings and investments if you have more income than expenses. You should have cash savings to cover at least six months of expenses, according to the FDIC.

Step 9

Decrease spending in the flexible categories when your bills exceed monthly income. For example, if it appears there will be a $200 shortfall, then you could plan a low-cost menu to lessen the amount spent on groceries. Avoid decreasing the amount of money allocated to savings, if possible. An emergency fund helps you to reach financial security, as you will not have to take out expensive loans or suffer with bad credit for not paying the bills on time.