Budgeting is as Easy as 1, 2, 3, or 6 Steps!
Before you budget things, you must have in hand all of these things: Income records like cash gifts, tax returns and bonuses; pay stubs from stores, restaurants, etc; and recurring bill copies. Also it is imperative to have copies of your daily and monthly expenses and check register (if you’re using checks) on hand. Finally, if you’re doing budgeting with another person, it is wise to be patient and civil because of personality differences. One may want to budget on an area which you don’t necessarily agree with. Do let them handle the budgeting for that part but go over it and adjust it accordingly if it becomes way up than the budget you both set and by how much. It is also advisable to set a time limit for doing this. If doing this will take a long time for you and your co-budgeter to finish, tempers may start to flare because one might want to go over it carefully while the other wants to be over it quickly.
Here’s a quick way to budget things.
KNOW YOUR INCOME SOURCES MONTHLY.
This is a lot easier if you have a fixed monthly income, but if you own your own business or is self employed, then it’s bound to be irregular. You can use the money you have in your bank account as the basis for budgeting first. You can use either your net or gross income. But it is advisable to use the net income because you don’t have to write down those expenses that are constant monthly like taxes and insurances, etc. If you want to use the gross income, be sure to write down the monthly expenses deducted from your salary. For self-employed individuals, assign an amount for your tax.
KNOW YOUR MONTHLY EXPENSES AND RECORD THEM DOWN.
Put in writing your monthly expenses. Also add in it the expected extra expenses you might have like birthdays, holidays, registration dues, etc. These expenses include the following. Taxes, mortgages (if you have more than one), expenses for your car, insurances, debts, monthly groceries (include in it use for the home and restaurant dining), medical, personal care items (hair cut, parlors, etc.), school expenses (elementary, high school and college funds), household maintenances, emergency funds, retirement funds, entertainment expenses (dates and video rentals), gifts (birthdays, holidays and anniversaries), babysitting expenses (if you have kids), monthly bills, and personal money. To be safe from unexpected expenses that you’ve forgotten to list down, set aside a “cushion account.”
SEPARATE YOUR EXPENSES INTO CATEGORIES.
After listing down your expenses, categorize them into “fixed,” “semi-fixed” or “variable”. Note that those you categorized into “semi-fixed” must not exceed a discrepancy of $10 monthly.
ASSIGN THE “FIXED” AND “SEMI-FIXED” EXPENSES FIRST THAN THE “VARIABLE.”
It’s much easier to categorize these two things first because it is usually your biggest monthly expenses and are nonnegotiable. You can fill up the “variable” expenses after you’re done with this.
DEDUCT THE EXPENSES FROM YOUR INCOME.
When you get to this process, you can use the spreadsheet to help with the budgeting. It is easier to calculate your income and expenses plus arrange it without having to write them down again.
BALANCE YOUR INCOME AND EXPENSES.
If your expenses outweigh your income, you have to do the balancing of things until these two are even. This is the tricky part because oftentimes there will be conflict between you and your partner. Trading off between categories is much needed to balance income and expense.
Now that you have the basics of budgeting, enjoy doing it. Remember to take some Advil for the headache it might cause you.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life.
