Budgeting could be the difference between one day reaching financial freedom and remaining handcuffed to debt. It could leave you trapped working a job you hate just to survive. Budgeting could stand between you and happiness.
Pen and Paper
I cannot stress the importance of creating a budget and doing it yourself. I highly recommend using pen and paper for your budgets. Take my word for it. You have to learn the basics of budgeting first and using just a piece of paper and a pen is the best way to do that. Once you have budgeted for a couple of months, then you can move onto online programs but for now, I need you to trust that this is best.
Determine Your Monthly Income
Figuring out your income is an easy task if you have consistent paychecks every single month. You add up all of your paychecks and you have your take home income. Remember, your budget should be based upon your net income (after state and federal taxes, employer deductions, and insurance premiums).
But, those of you that have irregular income, it’s a different story. Being in that boat myself, it can create some really bad budgeting headaches. When your income fluctuates, you need to focus on the worst case scenario.
For example: Let’s say you work from home as a writer and you make anywhere from $600 – $1,500 per month. The income that you would use for your take home income on your budget is $600.
What do you do when you make more than $600? Stay tuned below!
List ALL of Your Bills/Expenses
When creating a simple budget, you need to know two different things – what you need to pay and when you need to pay them. Write down on the same paper you wrote your income all of your bills and the due date for each bill and the amount. Make sure you’re completely honest with yourself when listing your bills and expenses. The general rule – if you spend money on it, you need to list it.
The definition of an expense is this: things that you (and your family) can’t live without. Or, in other words, necessities. An example would be food and electricity. If you are not sure on how much you spend on necessities look at your bank statements for the last two months.
“Infrequent Money” Expenses
The other expense to list for your bills/expenses are things that I call “infrequent money” expenses. These are things that you don’t spend money on every single month but are things that you buy infrequently. These are things like like gifts, vacation funds, saving goals, haircuts, or clothes. To figure out the amount to add to expenses is to set a realistic amount of what you think you need.
So where do you put the money for these expenses? The best thing to do is to open a separate bank account for each expense.
Check out 7 TWISTS ON 52 WEEK SAVINGS PLAN IDEAS.
Subtract Your Income From Your Expenses/Bills
Reality hits hard at this step. When you do this for the first time, you will probably hit a negative number. This just means you are spending more money than income. Most people don’t realize this until they have it all written down.
What If I Got a Negative Number?
Look for ways to cut your current bills.
Getting rid of cable and going to Hulu or Netflix is a great example of cutting cost. Some other examples would be changing to a cheaper cell phone plan, or looking for package deals on reoccurring expenses like car insurance and house insurance.
What If I Got A Positive Number?
First of all, jump up and down and give yourself a high five! Having a positive number when you subtract your income from bills/expenses is awesome. But, you must have a plan for it. Put extra money gets put towards something you want to save for. Maybe you want to retire early, or pay more towards your mortgage. If your income is an up and down roller coaster, save it for rainy days.
You always want to make sure that every dollar of income has a place. By doing this, you won’t blow it on something you don’t need.
When You Are Going to Pay Things?
I suggest getting a calendar and paying bills when you get paid. Write down the days you get paid and organize your expenses by what is due closest to those dates (don’t pay late!). Figure out all bills/expenses and repeat until all bills are listed under your pay dates. Subtract them from your income on that payday.
You can find some free printable calendars on Pinterest, or you can find some for just a dollar if you hit up Target’s dollar area at the right time of year.
It’s important that you check your budget against your bank account regularly. Especially if you share it with someone. You might forget something that automatically comes out, like bank fees, or other things you forgot to write down. Pick a day each week to look over your bank account and adjust your budget calendar.
I hope this helps you to start liking to budget, or even start LOVING it! ; )