Creating a Monthly Budget
Each day of the series offers new tips, ideas and a challenge to start the year with a solid financial plan.
If you’ve been doing the leg work all week, creating a budget is the easy part. It’s a a very simple formula—income-expenses. The goal is to have a positive answer to the equation, with funds leftover to increase your savings, pay off debt or pay for fun things like vacations.
The real trick is coordinating weekly, bi-weekly, monthly and occasional expenses with your paycheck schedule. We like to prorate amounts, and set aside enough with each paycheck to pay the bill at the appropriate time. The hubby gets paid monthly&dmash;it was an adjustment at first, but I really like it now.
We have all our money upfront, each month, to pay bills, budget expenses and manage debt. I withdraw our grocery budget at the beginning of each month, then divvy it up each week as needed. For annual payments, we bank 1/12th of the amount with every paycheck, then use the funds to pay the bill when it arrives.
So, start with your income—list all regular sources, then break it down to a monthly amount. When we were on a bi-weekly paycheck, we worked with an assumed 4-week budget. That left 2 months each year with a 3rd paycheck—again, perfect for increasing savings, paying off debt or taking an annual vacation! When it’s time to enter your expenses into the budget, list them in order of the priorities you set earlier.
This will allow you to cut costs from the bottom up later, if it becomes necessary. Include everything you ever spend money on—estimate monthly allowances for groceries, clothing, travel, dining, school field trips, classes & sports…Seriously, anything you can think of! If you’ve been tracking expenses, it should be pretty simple. When you have everything on the list, it’s time to do the math.
Don’t panic if there isn’t a surplus—we’ll be working through ways to reduce expenses, to realign your budget, next week. Today, you’re just getting a picture of your finances. It will include discretionary categories, occasional payments and optional expenses that we’ll be able to work with later. Don’t stress over the final number—this is just a first draft.
We have 25 more days to work on the final budget.
I’m not a financial planner or a budget expert. I’ll just be walking you through the steps I take each time my budget needs an adjustment. In fact, I’ll be participating myself!