The first thing you need to know to start a budget is how much income you have coming in. Does this change from paycheck to paycheck or is this a set amount every paycheck? If your paycheck changes I would use the smaller average amount and create a category in your your budget for overflow from the other paychecks. This overflow would be your buffer for unexpected bills or paying off debt, or saving it to be able to pay your bills on the more expensive part of the month. Do you have any other monies that come in from other sources ie. selling stuff, babysitting, odd jobs, ect.? How much does this income add up to every month? If you do not know for sure but you are doing these things regularly start keeping track. The next thing you need to know is when does your paycheck come, weekly, bi-weekly, monthly? Write a list of all of your incomes and their amounts. Put this aside.
The second thing you need to do is figure out what bills you pay every month. Some things you might pay would be: mortgage/rent, electric/gas, water/trash/sewer, home/renters insurance, vehicle insurance (for all vehicles), Cable/Internet/Phone, Cell Phones, Blockbuster/Netflix, Car Loan (s) list separately, Misc Loans (list each), Credit Cards (list each separately), Tithe/Giving, School, Gas/Grocery/Household, Clothing/Entertainment, Medical Bills, home owners dues, extermination, home warranty. Write down all of these and the costs associated to these things.
The third step is write a list of things you would like to save for. Things you would like to do or buy down the road. You should include an emergency fund in here enough to cover your bills for 3-6 months. Other things that would fit into this category are: Retirement, Travel, Savings, Purchases (I would make a list of the purchases you would like to buy and how much you think it will cost to buy them). Decide how long down the road you would like to purchase these items or have those amounts in the above funds. Then take the amount of the items/fund and divide it by that many months. That will give you your monthly budget for your Additional Funds.
Now that you know where you receive money and where you spend it either use a program like quicken, Microsoft money or a simple excel spreadsheet (table) to organize this information. If you do not have access to these types of programs a calculator and piece of paper will work as well, simply create a table.
Income | ||
Paycheck | 0.00 | |
Odd Jobs | 0.00 | |
Misc. Pay | 0.00 | |
Bills | ||
Mortgage/Rent | 0.00 | |
Electric/gas | 0.00 | |
Water/trash/sewer | 0.00 | |
Home/Renters Insurance | 0.00 | |
Vehicle insurance | 0.00 | |
Cable/Internet/Phone | 0.00 | |
Cell Phone | 0.00 | |
Blockbuster/Netflix | 0.00 | |
Car Loan1 | 0.00 | |
Car Loan 2 | 0.00 | |
Misc. Loan 1 | 0.00 | |
Credit Card | 0.00 | |
Tithe/Giving | 0.00 | |
Gas/Grocery/Household | 0.00 | |
Clothing/Entertainment | 0.00 | |
Medical Bills | 0.00 | |
Home Owners Assoc. | 0.00 | |
Extermination | 0.00 | |
Home Warranty | 0.00 | |
Additional Funds | ||
Emergency Fund | 0.00 | |
Savings | 0.00 | |
Retirement | 0.00 | |
Travel | 0.00 | |
Future Purchases | 0.00 | |
Income Total | 0.00 | |
Bills Total | 0.00 | |
Funds Total | 0.00 | |
Income total subtract bills total subtract funds total equals how much money you have after you have paid all of your funds. | ||
Now that you know how much money you need and how much you make you have a starting point. The next step is to decide do you have enough income to cover the bills and funds you want/need? If yes, the next step is to set up a system and commit to it. Now this could be pulling your paycheck out into cash and separating it into labeled envelopes or file box for your various bills. Another way you could do this is open 2 checking accounts at the same bank. Move your money for the bills due into the second account. You can either direct withdrawal from this second account to pay the bills or simply pay from this account using checks or bill pay. The first account allows for any extra or overflow. I would then open separate savings accounts for your funds. HSBC does mainly online banking and provides a good interest for your savings. I would then do a bank to bank transfer from your main checking into these savings accounts. You can then easily keep track of where your money is and how much you have. I do a direct bank to bank for my savings so I don't even have to think about it.
Now if you don't have enough income to cover your bills here are a few suggestions: Look at your grocery, clothing and entertainment, eating out bills. What can you cut out from these funds? Can you save money here? This may not be a permanent cut but could be just enough to sway the balance. If you are still short look at ways to lower your other bills, can you drop a cell plan to a smaller one and save 10 dollars or more? Can you be more contentious about electricity, water, gas usage to lower the monthly bills? Maybe canceling the cable/satalite tv or internet or going down to just a home phone or just a cell phone would be another way to cut bills. Try to eliminate the bills section first. Temporary cuts of extras may be a way to quickly increase your income down the road once those pesky loans/credit cards are paid off. This opens your budget up to make your other financial goals. Another way is to hold off on travel or future purchases funds. Or see if you can refinance or combine loans or credit cards to achieve a smaller interest rate. Before you do this you should make sure to do a lot of research, read the fine print and ask someone you know or a professional that understands this process.
Figure out which plan will keep you on tract and run with it. If you start something and it isn't working tweak it and keep going. Its about baby steps. Fixing your finances won't happen over night and it will probably take a lot of consistency, trial and error, and some sacrifice but the end goal of financial freedom will be worth all of the sacrifice. Always put as much extra monies on your debts starting with those that have the highest interest rates. Never pay the minimum balance on a credit card. Always pay what is actually due every month. This is an important step in setting up your budget. Budget for what the bill is not minimums. Preferable you should over pay your bill if you have a large balance. This goes for your loans too. A good rule is round up. If you payment is 160 pay 200. This will pay your loans off significantly sooner (a note would be is call your loan office and make sure that they pay on the principle when you pay extra, also that you do not have a early payoff penalty). If this is an area you struggle with ask a friend for support that is good at saving. Have him/her keep you accountable.
Always Remember:
Philippians 4:19 And my God will meet all your needs according to his glorious riches in Christ Jesus.
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