It is recommended that everyone have a budget, and many people have a kind of “general” budget in their heads. Budgeting this way rarely works. I’m not saying a budget must be written in stone and never deviated from, but if you take the time to create a realistic budget, you will find you can stick to it much easier than when you just have a general idea in your head of where your finances go.
First, I would recommend using a computer program. If you want to do most of it manually and have the skills to create formulas, Microsoft Excel can work great. However, there are software programs that will literally create a budget for you. MS Money, Quicken and other money management programs can make creating a budget extremely simple.
As you get started, one of the first things to consider is whether your base paycheck is the same every week or if it fluctuates from week to week if you work in a business where your hours may not be the same amount every week. If your base paycheck is the same every week, then you know each week how much money you are going to get, so this helps determine how much goes into each category easier because the amount is steady. Of course, this doesn’t include overtime or bonuses, but we’ll talk about that a little later.
If your paycheck fluctuates from week to week, that makes creating a budget a little more difficult because each pay period your paycheck can change. Typically, however, you can count on a minimum number of hours, and at this type of job, you are getting an hourly wage. So if you know what those minimum hours are, calculate out how much that is weekly (or each pay period, whichever you are more comfortable with). If you aren’t sure of what your typical minimum hours, look at your pay stubs and find where it indicates how many hours you worked for that pay period. Check the pay stubs for approximately the last three months and then average out how many hours you usually work.
If you are using a software program that creates a budget for you, it will guide you through this process, including figuring out your average hours. A software program will ask you questions about your spending habits and you answer the questions and then it creates a budget based on your answers. You will easily see where you might be spending money unnecessarily which causes you to come up short each pay period.
But let’s talk about if you were to create such a program in an Excel worksheet. Start with your income each pay period. Then make a list of all the things you spend money on, not just required expenses like rent/mortgage, insurance and utilities, but how much you typically spend on groceries, eating out, Starbucks (or your favorite coffee shop coffee). Literally, list everything you can think of that you spend money on.
For those required expenses like rent/mortgage, insurance and utilities, those are monthly expenses, so you want to take the total and divide it by your pay period, etc. whether you get paid weekly, bi-weekly or twice a month. This will tell you how much you need to put aside each pay period to cover those expenses like your rent or mortgage, which is unchanging, as is insurance typically. Some utilities you can control to some extent like heating/cooling costs and electricity. You’ll be surprised how much you save by turning your heat down a few degrees and putting on a sweater or making sure you don’t have more lights on than you need. Most utility companies also offer budget programs where they look at your usage and then determine a consistent monthly payment, so each month you know exactly how much your electric is going to cost you. One caveat there though, at some point each year, the electric company calculates your actual usage. If you have over used, you will owe them a bulk payment. On the other hand, if you have been very cognizant of how much electricity you use, you could also get a credit. Just make sure you know how the utility company works their budget program.
Unless part of your job involves driving, you will typically use approximately the same amount of gas each week, give or take a few dollars. Personally, I like to add a couple extra bucks to my gas allotment just in case I end up driving more than I intended, I have budgeted for that extra gas.
Finally we come to those expenses that are really technically unnecessary like that daily Starbucks, or eating lunch out each day. You could save a lot of money by brewing your own coffee at home and bringing lunch to work. This extra money could go towards savings or your “rainy day fund” for when something unexpected happens like your car breaking down. That money you have been spending on Starbucks and eating out each day can add up very quickly.
You should also put aside a part of your paycheck aside for savings (aside from the rainy day fund). This savings could be for long term goals like a vacation, holiday shopping etc.
In closing, the best way to stick to a budget is to build into your expenses some “disposable income.” This is money that you put aside each week to do whatever you want with, whether it is going to a club with friends or buying a new outfit.
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