When I first moved out on my own after college, I wanted to furnish my new apartment, so I bought all new furniture.
I set my place up all nice and pretty, got a dog, lived the early 20’s carefree life.
Then the bills came due and the rent came due and the car needed repairs and the dog got sick and vet bills are ridiculous, don’t you think? And then there’s the electric and the phone and food and on and on.
All too soon, my bills were bigger than my paycheck and I was in trouble. Creditors calling, the whole nine yards.
And you won’t believe what I went to college for.
I was young, ok?
I had a light bulb moment and I came up with a system that worked for me. It takes a bit on the front end and some discipline to stick to, but if you can do that, you’re going to:
- Be more free with your money
- Have money when you need it
- Keep your credit intact.
Why do you need a budget?
You need to know where your money is going. You have expenses that need to be paid, like your mortgage, electric, etc.. and expenses you have for things you want, like buying gifts for your family or taking a vacation. If you don’t plan for these expenses, chances are when the time comes, you’re going to be short.
Now I know that’s not normally how people live. Don’t have enough money? Charge it. Pay it later. BUT, if you want to be free of debt and the stress that comes with it, you need to budget your money.
You might think you don’t need a budget because you make plenty of money and you don’t have that many expenses and money in the bank. That’s awesome! But think about this. You have some savings and you’ve put a deposit down for your fun family trip and then
- your water heater breaks and you need a new one
- your car breaks down and
- the carpet needs to be replaced because ants have taken refuse underneath and they only come out at night to feed, like zombies.
So, yes, even you need a budget. Everybody needs a budget, no matter how much money you have or how little you have. They’re freeing and informative and can keep you out of financial trouble. Cause really, who wants to be in financial trouble? Not me and not you.
How do you set up a budget?
- Calculate your monthly income
- Calculate your fixed monthly expenses
- Calculate your variable monthly expenses
- Write it all down
- Keep monthly track
1. Calculate monthly income
This is the easiest, right? You simply take your net income (take home pay) for the month and write it down. If your pay is inconsistent, look over the last 6 months and average your monthly pay. That is, add up your income for the last 6 months and divide that number by 6.
2. Calculate fixed monthly expenses
These are the the expenses you have that do not change month to month, like your mortgage, car payment, cell phone bill, groceries, etc.. Anything that is a consistent expense that you pay on a monthly basis. Include a set savings number, pocket money and some for your dream fund (more about that on my next post.) These are important!
3. Calculate variable monthly expenses
These are expenses that pop up from time to time. Think gifts, car maintenance, education, clothes, house maintenance, etc.. Anything that you don’t necessarily pay monthly, but that will come up at some point throughout the year. You can come up with these numbers by either estimating how much you’re going to spend throughout the year and dividing that number by 12 to get a monthly number or looking over the past year at what you’ve actually spent on these things and dividing that number by 12.
4. Decide Where to Keep your Budget
- Hard copy
- Online copy
Are you a pen and paper person or a spreadsheet person? I suggest keeping your budget on the computer because the numbers are easily changed and the calculations are automatic. ALSO, I’ve already made a FREE Budget Plan for you to use, so you can start getting your budget nailed down. 🙂
5. Keep monthly track
Every time you pay a bill or spend money, plug it into your budget to keep a running total of the money you have left in each category. This will tell you what you’ve spent and how much you have left to spend.
It may seem like a lot of work, but it really isn’t. Once you have your budget set up, it’s easy to maintain and adjust. You’ll feel better having your money accounted for because when an expense comes due, you’ll have the money for it and won’t have to charge or scrounge to come up with the dough.
Okay, you now have a start to your budget. Do you already have a budget? What method do you use to keep track of your money? Don’t forget to download my FREE Budget Plan! If you have any questions, leave them in the comments.