How many people actually know how to utilize a budget?
I can tell you from personal experience that while budgeting may be the easiest thing to learn, it doesn’t seem that way if you have never used one. I am amazing at managing my money now, but that wasn’t always the case. Before having my son, I had a disposable income. I had no financial obligations because I lived with my mom but as a considerate human being, I did chip in to offset some of the bills I was utilizing. Other than that, I could do whatever I wanted. It didn’t matter how much it cost me.
After I had my son, I continued living at home for a while but eventually I wanted my own space. I wanted to raise my son my way without any debates… but that’s a blog for another day. Trying to save up my money to rent an apartment of my own (to this day) has been my biggest financial challenge! It really opened my eyes that I had to be better with my money. I realized I was spending as much, if not more, money than I was saving. Going out to dinner several times a week with my girlfriends, random road trips and shopping trips across state lines, buying new and exciting toys and gadgets for my infant who had no idea what they were… it all adds up and it doesn’t take long!
Once I moved out on my own it really forced me to get with the freaking program. Budgeting was and still is something that is NOT stressed enough in high school. I was a nearly straight-A student who could pass math class like it was nothing but I couldn’t for the life of me tell you how to budget money. It was a trial and error process. I tried bank logs, financial planners, keeping my receipts… NOTHING made sense to me. I had bits and pieces of the puzzle that is a budget but no one could break it all down for me. So that’s what I want to do for you. I want to take you step by step through my budgeting process to show you how simple it can be.
First of all
Not all budgets are created equal. I think we all know that.
Not everyone makes the same amount of money. No one has the same amount of deductions in their paycheck and no one spends exactly the same amount of money each month. Even so, none of that matters. What matters is that you know the key factors involved. Once you know that, you need to set aside some time every month to put into writing out your budget. It doesn’t take long at all. Depending on how many bills you have it could take as little as 15 minutes. Now, when I say sit down and write out your budget, I don’t mean to get out every bill you have and pay them. Not all bills will be due at the same time. Taking the time to make a budget is really making a schedule for your bills. That way, as they come along, you can pay them, check off what you’ve done, and have a measure of how much money you have left after responsibilities are taken care of.
So, let’s do this!
Recurring monthly budget
Once you understand the key points of a budget and how to use one it gets easier with time. Generally, the most time you will have to put into it is when you initially set it up. After that it’s recurring. Typically, the same bills come out of your budget every month. Occasionally you will have to add in another bill or maybe you splurged a little so you have to account for that. But other than that, every month you will be copying what you did the month before. The nice thing about a recurring budget is that instead of just doing one month at a time, you could do multiple months in a row. It gives you the ability to make predictions about your finances months in advance. Let’s say in 2 months your car is due for an oil change… you can budget for it. Maybe you didn’t spend all of your allotted money for miscellaneous household items so it can roll into next month. Suddenly that’s a chunk of change you can roll over to the following month and it can be used toward your oil change.
Know your bills
Make a list of what you have for bills so you can refer to it each month. Then you know you won’t forget to account for anything. If you accumulate more bills add to it and vice versa. It would be helpful if you also take note of the exact date or time frame of which the bill is due to be paid. You definitely don’t want to get caught with a couple extra Benjamins to spend then realize later you needed that money.
- Netflix 11.99 due 3rd week of the month
- Cell Phone 89.64 due 24th of every month
- Car payment 250.00 due 1st of every month
As far as miscellaneous spending, sometimes you won’t need all of what you set aside within your budget. If you don’t spend it on what it was intended for then make a mental or physical note of it. It’s money you can use for whatever the heck you want come the end of the month when all the bills are paid. Instead of spending it, perhaps you want to put it in a rainy-day fund or a just-in-case-shit-happens fund. It’s yours. You can do what you want with it. Make sure that if you have money rolling over into the next month that it gets accounted for so you don’t panic later. If you happen to be anything like me, I worry more about having too much money in my account than I do if I don’t have enough, like “oh crap! What bill did I forget to pay?!”.
Know your income
This would also be a good time to get out a pay stub from a pay period when you took no time off. Knowing your full net income (the amount of money you bring home after taxes are taken out) is key when learning how to budget your money. You will also want to know how often you get paid. Breaking your money in and money out monthly can give you a general overview of how much extra money you might have to spend but it won’t help you in the long run. A good budget should be broken down per pay period. Thus, if you get paid weekly you will break the month into 4 weeks (every quarter there will be an extra paycheck so periodically you will break your budget into 5 weeks). Should you get paid biweekly then your budget would reflect a breakdown twice a month (and periodically, 3 times).
Now that you know the maximum amount of money you bring home per pay period you can easily figure out your net worth per hour. Take the net value of your paycheck and divide it by the number of hours you work per pay period. This will give you your net pay per hour. Knowing how much you bring home on an hourly basis will help you in the future if you have to take any unpaid time off from work. This happens to me all the time. Luckily my employer is amazing when it comes to daycare closures, sick time, or other miscellaneous emergencies that come up.
On the flip side of taking time out of work without pay, make sure you know if you have any accrued paid time off. If you use it to balance out how much time you missed at work then you will still have a full paycheck. Or if you only have enough paid time off to cover part of what you missed then knowing how much you bring home on an hourly rate will, again, help you figure out what will be short in your pay.
You will also want to take note of how many paychecks you receive between the first day and the last day of the month. Don’t worry about something like a pay week being half in one month and half in another. It’s irrelevant because that half of a week will show up in the next paycheck so it will count as future income not current.
“Robbing Peter to pay Paul”
Another positive side to having a recurring budget set up is that you can “rob Peter to pay Paul” if you are in a pinch. I do it all the time. It definitely requires going over your budget for 2-3 months at one time but it has been so helpful! There are always times when you need to pull money out of nowhere when you are stretched to your limit. Unexpected car repairs can be a bitch. I know you all can relate! I drive a 2010 Nissan Frontier pickup truck. She’s a master of perfection. I’ve had it for 3 years and never had a problem. Not even normal wear and tear parts needing to be replaced …until this year’s state vehicle inspection came around. I ended up having to replace my front brakes. Had they made any funky sounds or vibrations to warn me they were going to need to be done I would have started planning ahead but they didn’t so, I couldn’t. Anyway, long story short, it was an unexpected expense. I always have a bit to spend every week so we live comfortably but A HUNDRED and SOMETHING BUCKS on the spot?! I hit panic mode for a brief moment then came back down to earth. I had to take from one bill to pay for the brakes. Having my budget to look at allowed me to use the money, get my car inspected, rearrange my finances, and make sure all bills were paid in full and on time. I’m not going to lie. I’m a budget master.
I’m a single mother with no one to rely on for help other than my life saver of a daycare provider. I take care of everything on my own and financial woes can be down-right daunting. When something happens that you didn’t plan for, your initial instinct is to panic. Now, I’m not going to psych you out by telling you that by having your money under control you won’t panic anymore. You certainly will. But having a well-developed budget plays a crucial role in the end-game. It can help ease your mind. That’s something that’s important to me because with my stress level down and my morale up, I get to spend more time enjoying adventures with my son. I would rather spend my time focusing on our quality of life than the nickels and dimes that run it.
Go give it a try!
I know that my method may not be the perfect solution for everyone but it’s worked wonders for me. I can guarantee that you will have to tweak it and make it your own. I’ve just given you the framework. When I do my budget, I use the spiral notebooks that go on sale at staples during back-to-school season. Catch the sale at just the right time and you can get them for 25 cents a piece. That’s a whopper of a deal! You can spend a couple of dollars and be set for the year. I also utilize a PENCIL (I stress that because you will make mistakes and you WILL need to edit your budget and you can pick them up while you are getting your notebooks) and start doing my finances like an old school math problem that’s a whole page long. When changes occur I either re-write my budget on another page with the revisions or I flat out cross them out or ERASE them (if you use a pencil like I highly recommend) and fix the math where necessary. To anyone else looking at it, mine might look like a hot mess but I know exactly what it says and where I stand every month. The only thing that matters is that YOU understand what it says. Keep in mind that getting really good at managing your money won’t happen overnight. It takes time and practice. Be patient.