How to Budget
It's good to have a budget. We need to be aware of our money flowing in + out so we can plan for things. At the beginning of the year my husband's pay switched from weekly to biweekly. I don't like that word because it can mean twice a week or every two weeks. Maybe we should switch to saying fortnightly. Did you know that a fortnight is literally every 14 nights? My husband gets paid fortnightly. So, I decided to make a new budget. And besides, new year. Making a budget is easy, it just takes time + numbers. The difficult part is sticking to it. Here is how I budget, in 5 slick steps. Grab a pen + paper + your bank statements. Lets do this.
Step 1: Calculate Monthly Income
To know how much money you can spend, you need to know how much is coming in. This is easy to figure out if you have a steady, regular income. Just add your paychecks for the month. If you have income that fluctuates, then there's a little more work involved. The best thing to do then is to plan on the worst case scenario, or the least income. Instead of adding only last months paychecks, you want to go back and add the lowest amounts from the last four months.
Regular Income Example
Irregular Income Example
week 1: 1000.00
lowest from month 1: 600.00
week 2: 1000.00
lowest from month 2: 750.00
week 3: 1000.00
lowest from month 3: 850.00
week 4: 1000.00
lowest from month 4: 800.00
This amount is your Monthly Income Total. This is exactly how much money you are going to spend or delegate every month.
Step 2: Calculate Expenses
There are three basic types of expenses. Financed, fixed, and variable. Your financed expenses are anything you make payments on, like your house, or any loan or credit card. Your fixed expenses are the payments that must be paid every month like your utilities, and your insurance. List all of your finance payments + fixed expenses with the date they are due + the amount you pay. Add these amounts so you have a Finance Expenses Total and a Fixed Expenses Total.
Your variable expenses can change from month to month. These are things like groceries and household items. How much fuel you use, or how much you eat out. The money you spend on the babysitter + dates. Things like birthday's + vacations + savings. You can get these amounts from your bank statements. If it seems too difficult to comb through and find them all, then start writing down every single purchase you make. (Remember check registers? I don't know if anyone uses them anymore! Track your spending for a month and make your budget the next month from those amounts.) Add these amounts for a Variable Expense Total.
Add together your Finance Expense Total + Fixed Expense Total + Variable Expense Total. This is your Expenses Total.
Step 3: Find Balance
Are you ready for this? Take your Monthly Income Total and subtract your Expenses Total. This is your Balance. Now, don't freak out if you end up with a negative number. You are aware. You are starting. How can you cut back on your spending? Try getting your insurance or your phone bill lowered. When you are curious + creative, you will find ways to work it out. Give yourself time to get back on track + balanced at zero. Yes, your balance should be zero, and not a positive number. If you have a positive number, you need to do something with that extra money. Set goals and put it in a savings account or donate it. It doesn't really matter, but it is good to plan every dollar.
Step 4: Evaluate
Now we are going to decide when to pay things. It's nice to write everything out on a spreadsheet or a calendar so you can see it visually. First, write your income in on the days you get paid. Next, write your bills + amounts on the day they are due. Now, let's say you are paid on Friday the 10th + Friday the 24th (fortnightly!). Any bills due after the 10th will be paid with the paycheck you receive on the 10th. Any bills due after the 24th AND before the 10th will be paid with the paycheck from the 24th. I hope that makes sense. If you are paid weekly, then the paycheck you receive this week will be used for payments next week. If you are paid monthly then the paycheck you receive this month will be used for next month.
So, what happens when there are five weeks in a month? This is a good question. We like to think that we have extra money when there are five weeks in a month. This is why it is important to budget every month. Because, there isn't any extra money. Every month has about 30 days. Every month you receive about the same amount if you have a regular income. Don't let the 5 weeks in a month fool you. Make your budget, plan your spending.
Step 5: Review
Every month it is important to make a budget, especially if your income fluctuates. Your first month will take the most time to figure everything out. After that it will be a simple process to jot down your amounts on the right dates. This shows you exactly how much money you can spend + when you can spend it. If you use cash for your variable expenses, you will soon be on the positive side and be able to set goals for your money. Always remember to compare your bank statements to your budget and check that they are matching up.
I made a Budget Workbook for those of you who like those. Download it, print it, use it. Start with your income, take away your expenses, and delegate the balance. Soon you will be a master at living paycheck to paycheck and you will be able to extend that to living month to month and soon you will have 3 months of savings security. Maybe starting out you could try a no-spending challenge. A no-spending challenge is when you lower your variable expenses as much as you can (think free dates or oatmeal for dinner) to help get out of debt and have more money for your future.
If you are in debt and making a budget has been a negative experience, have courage. Remember mindfulness is the first step. If you want to do better, all you have to do is try, and you will do better. God will provide that which is needed. Be open to receiving it + spend wisely.