Some people love budgets and other people can’t stand them. Some people even go as far as to call budgets sexy (J Money writes at Budgets are Sexy) Regardless of which camp you are in they are in important tool for planning for your future. It can be difficult to figure out how to make your first budget so let’s start at the beginning.
Know What You Earn
In order to be able to properly budget it is essential that you know how much money you earn or bring in every budget period. To determine this keep track of every dollar that comes into your possession during your next budget period. Count your paychecks and any other regular money you expect to get consistently. This includes any rent from income properties, side gigs, pensions and every other dollar that hits your bank account, wallet or purse.
When you’re confident you’ve taken note of all of your income sources take a look and make sure you can reasonably expect this amount every pay period. If you work at an hourly job and worked 20 hours of overtime this month but have never worked overtime before and never will again you shouldn’t include that in your budgeted income number. Same thing if you sold some items around the house this month. Unless you plan on consistently generating the income you don’t want to rely on it on your budget.
Know What You Spend
Most people don’t have a problem with knowing how much they bring in a period but what they spend can surprise them. The smaller purchases can easily be forgotten and unless you keep track of all of your receipts you’re probably underestimating your spending. So what do I suggest you do?
As painful as some people make it out to be I suggest you keep track of every penny you spend. I’m not saying you’ll have to do this forever, but you at least have to get a good base line. To get this done you’ll need to do whatever works for you. I always get a receipt for EVERY purchase and put it in my wallet. When I get home I empty the receipts out of my wallet into a bin at home. I then record all of my receipts once a week.
What are some other ideas to record all of your expenses?
- Enter them into a smartphone notepad whenever you pay cash or swipe a card.
- Carry a small notepad and record your expenses there.
- Ensure all expense are paid via a traceable method (credit card, debit card or any other traceable method).
Once you have a list of all of your expenses group them in like categories to find out how much you spend on various items throughout the period. Some ideas of categories include rent/mortgage, insurance (car, motorcycle, homeowner, flood, renter), car payments, car maintenance, gas, food, entertainment, utilities (electric, phone, cell phone, cable, internet) and clothing. This list can go on forever but make categories based on what makes sense to you.
After you have a solid idea of what you earn and what you spend you are ready for the next step. Creating a budget! Check back soon for the next steps in my budgeting process!
Do you know what your income and expenses are or would you have to do research and calculate it? Be honest!