Create a Budget
Last weeks advice was to spend less than you earn. You can't really do that unless you know what you earn, and what you need to spend. Hence, this weeks tip.
Steps to creating a budget (I'm doing this based on a monthly budget, but you can tweak it a little for whatever time period you need)
1. Calculate your monthly gauranteed income. Don't add in overtime/extra hours/bonuses unless you know you will recieve it every month.
2. Subtract your monthly bills. If you took your gross (before tax) income, subtract taxes, insurance, pension plan payments, anything else that's taken out of your paycheck. If you used your net (after tax) income, that's already been done for you.
Don't forget these monthly bills:
Tithing
Housing (rent/mortgage)
Utilities
Car payments
Phone/internet/cable
Debt payments
Car insurance
3. Now, calculate annual/semi annual/quarterly bills. This is a big step that people forget. These are things like car registration, tuition/books, property taxes, etc. In short, bills that aren't monthly, but you know you will have to pay them.
Divide this number by 12. That's your monthly cost for these bills. Subtract it from the above number and set aside in savings so you have money to pay these bills as they come due (often, property tax is included in your mortgage payement in the form of an escrow. Check on that before adding this bill).
4. Subtract monthly neccessities, like food costs, gas, clothing (if you're like me, you don't buy clothes every month. Calculate an annual clothing cost and divide by 12 for monthly), gifts, etc.
5. This number will help you gauge how much you can save. I hate putting savings at the bottom, but it's important to know where you are at with your spending so you know how much you can save. If you can't cover your basic nessesities, you'll just dip into your savings every month any way. If you have plenty left at this point, aim to put at least 10% of your gross income away every month. If not, find a reasonable number, and save that EVERY month. Don't touch it.
6. Subtract your savings from above.
7. This number is your discretionary income. You can use this for entertainment, trips, save for future large purchases, extra savings etc.
**Also, if you do get bonuses/overtime/etc- this money can all go into discretionary as well.
If at some point in your budgeting, you start going negative, continue with the budget to see how short you are. It's important to know if you can really cover your costs or not. We'll address those shortcomings next week. And, if you should still have money left over every month, but you don't, we'll address that soon too.**
There are some great budgeting worksheets on the internet. Here are a couple of my favorites.
Also, if you have a great story of how budgeting has helped you, please feel free to comment below and share it with the rest of us.
4 comments:
You make it sound so easy...way to go!
All I have to say is you feel so much freedom when you have a budget. I know that seems like an Oxymoron but it's true!
You're good. I wish I had the desire to be that good. Maybe if I keep checking in every Friday your financial fitness will rub off on me. Thanks for this.
But what do you do if you have no money left over! Borrow?? lol!
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