Well I guess the reason that you are here and reading this is because you want to have a better hold on where all of you money is going. We all have been there, the end of the month comes, you look at your bank account and it is a mere shadow of its once glorious self at the beginning of the month. You then look around, trying to find where all of that precious money went. Yep, it is time to start budgeting. Below are six easy steps for those who have either never budgeted their money before, or have tried but gave up. If you are one of the later people, then let’s make sure this time the want to budget sticks and you can actually see where all of your money is going and hopefully adjust your spending habits accordingly. 1. START EASY The reason why many people fail when they first attempt to create a personal or household budget is because they try and tackle every little detail of their financial lives right off the bat. This is like thinking you can win an Olympic gold medal before you have even begun training. Remember the old adage; you have to learn how to walk before you can run? Well, the same holds true when it comes to budgeting. If you have never set up a budget for yourself and your family then the best way to get started is to put together a very basic list of your monthly income and expenses. Just look at your most recent paycheck to see what you made after taxes and then figure what you know you have to pay for every month. Stick to listing those things you can easily identify; such as rent or mortgage, your car payment, your car insurance, and utilities, etc. etc. After a while of doing this, perhaps three to six months, then start adding more things to your budget, they may be other sources of income or other expenses or both. The key is for you to start easy, and work your way up to making your budget more inclusive and more detailed as you become more comfortable with how and where your money is being used. 2. DETERMINE AFTER TAX HOW MUCH YOU CAN SPEND In order to have an effective budget you have to know how much money you are bringing home – appropriately called your take home pay. We all hopefully know what our annual salary is, but that is a before taxes and deductions figure; it is not how much you have to spend; so you have to create you budget based on how much money you deposit at every pay period; after taxes and whatever other deductions may be taken out of it. This is not as simple as one would expect. Not everyone gets paid once a month, which would then make it pretty simple to calculate your annual income, simply multiply your income after taxes and deductions amount by twelve. Most of us however get paid in some other fashion, every two weeks, on the fifteenth and the thirtieth, or weekly. To figure what you annual income is for different pay schedules, use the chart below (have no worries the math is very easy): Calculating Your Monthly Salary When You Get Paid Multiply By Divide By Each week 52 12 Every 2 weeks 26 12 Twice a month 24 12 Every 3 weeks 17.34 12 Some of us have other sources of income that we use to help pay our bills and expenses each month such as interest income, alimony, child support, inheritance, or whatever it may be. You can and should include these sources of income in formulating your initial simple budget; just use the same chart above to determine the monthly income from these sources as well. 3. WHERE YOUR MONEY GOES This is the fun part, and I am being facetious when I say “fun.” Everyone likes figuring how much money they are making, because it allows us to actually visualize our all our hard work and what it is worth. When it comes to expense we tend to get a little depressed. This is because we all have many more expenses than we do sources of income if you do have more sources of income than expenses, then you are probably not reading this article right now and have enough money to let someone else handle your finances. For the rest of us mere mortals we have to make do with what we have, and figure our own finances. I can pretty much promise you that you will have hidden expenses or expenses you currently do not realize exist; for you beginners, remember the first tip above and stick to your simple budget at first. As you get more relaxed with your budgeting you will have to eventually address these expenses; the easiest and best way to do so is to group these expenses into categories as best you can. A budget is not like the Ten Commandments, which means that it isn’t etched in stone, if you find that an expense is in the wrong category, simply move it to the appropriate one. The most important thing is that the expense is accounted for in your budget, and not forgotten. 4. MATCHING YOUR INCOME TO YOUR EXPENSES BY WHEN THEY HAPPENED Most people choose to create their budgets based on monthly income and expenses, which is the way I have been using and how I am going to continue to use as the basis of calculation throughout these tips. It is important that you match your monthly income to your monthly expenses. This means that you should record your expenses based on when the expense happened; not when you paid the bill. Often times we get a bill at the end of a month, but it isn’t due until the beginning of the next month. As an example my power bill arrives religiously on the 25th of every month, but it isn’t due until the 5th of the following month; which is typically when I pay it. However I don’t record the expense in the month that I paid the bill; rather I record the expense in the month for which it is for, which is the month that I received the bill. By matching your income to your expenses for the appropriate time period in which they occurred, it will be easier for you to see if your income is enough to cover your expenses. 5. ESTIMATING THOSE VARIABLE EXPENSES There are some expenses that vary, and others that are not a recurring expense. In these situations you will have to estimate what they typically cost you. Your utility bill is one of those bills that are never the same amount each month; so instead getting exasperated because you don’t have a hard and fast number to assign to your utility bill you will have to do an estimated figure for it. Just make sure you estimate towards the high side and not the low; otherwise all it will take is one month of record temperatures to completely ruin what you have budgeted for utilities. Remember your budget is not a fixed monument to your finances; it is and should be flexible; so if you are just starting out with your budget, then allow yourself some leeway, as you come to grips with your expenses, and how you categorize them. 6. KEEPING UP WITH MISCELLANEOUS EXPENSES As you get wiser to your ways and your budget, you can start tracking all those other expenses. You know that you will have to pay your rent or mortgage every month, as well as your phone bill, power bill, cable bill, etc.; but, you and I both know that there are many other things that everyone spends money on that they don’t necessarily get a bill for. These are the tough ones to keep track of, because many of them just sort of happen through the course of our everyday living. These would include things like our lunches, having a night out on the town, that bottle of soda you bought at the convenience store after you filled your car up; which is another miscellaneous expense – gasoline; going to the movies, and the list goes on and on, but hopefully you get the idea. These are all expenses that as you continue to develop your budgeting skills will need to be accounted for. There are many ways to account for these, you could simply make a mental note of each one, but as you can see there are a lot of them so if this is your chosen method then expect to forget more than a couple of them, which isn’t good when trying to formulate and maintain an accurate budget. You could simply keep all of your receipts and then at the end of each week simply tally them up; or you could keep a little notebook, and write them down as they occur. Either of the last two are effective was to track your miscellaneous expenses; again I should point out that as you are starting out with your budget you will inevitably miss some if not many of these miscellaneous expenses and that is okay; don’t get discouraged and quit. Budgeting takes practice and even after you have been doing it for a while there will still be some things that will be missed.
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