Budgeting is probably the single most daunting task you may
encounter in getting your finances in shape. It's like that huge homework assignment in middle school that seemed hopelessly insurmountable
amidst all your other class work and extra-curricular activities.
But you somehow managed to pull it off, right?
How? Because it had to be done.
It's the same here. It has to be done to "make the grade". So just tighten up your bootstraps, grab your paper and pencil, sit down at the kitchen table, and "git 'er done!"
Once you get your personal budget figured out, the rest falls into place much more easily, and you don’t have to go through the whole ordeal again. A few changes here and there along the way, but that's a snap!
Determine Your Monthly Income.
List all gross income (before deductions), including commissions, bonuses, tips, and interest earned. Of course, if your income is the same from month to month, this part is easy. If it fluctuates, add up a year's income and divide by 12 to get the average. The easiest way to get the figures you may need is from last year's income tax return. You keep it in a safe place, right?
Determine Your Monthly Expenses.
If you’re fairly organized, you keep copies of all your statements, from the power bill to your cell phone bill. Dig them up. If you have them for the past year, that’s fantastic! Add up a year's worth for each category and divide by 12. That’s your monthly target for that item. Do this for every regular expense you have.
If you're not very organized, you're going to have to make some changes in your habits to make this work. But personal money management doesn't have to be hard.
Start by designating a box for all your statements and receipts. Nothing else goes in the box (no junk mail allowed!). For one month, every time you pay a bill, put each of these documents in the box. As you go along, think of other expenses that weren't due this month (property taxes, insurance premiums, whichever bills that are not paid monthly). Make a note and an estimate, and toss that in the box as well.
At the end of the month, sort through these documents and list the types of expenses incurred and how much they were. This will give you the beginnings of a starter budget.
Doing it this way won’t be nearly as accurate as beginning with a year's worth of statements and invoices, but it will get you rolling.
Continue to do the same thing (paying your bills and tossing the statements in the box, then tallying them up after a month) for a few months. Your numbers will become more accurate the longer you keep tabs. Adjust your initial budget numbers accordingly.
Hanging onto your receipts will begin to give you an idea of where your spending leaks are as well. Some of these types of expenses will become part of your Miscellaneous category, and some can be eliminated for the sake of making your money management work. Pay attention to these!
This may be a bit over-simplified, but because of the "overwhelm" associated with setting up a budget, simpler is better than going nowhere.
So, whether you're organized or not, setting aside a regular time
to manage and review your finances is of paramount importance.
It won't happen without effort.
And now, for the ever-important Budgeting Categories,
continue to Page 2.