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I know what you’re thinking…This is a really fun topic, I’m so glad she thought to blog about budgets!
Ok, maybe not, but I happen to be one of “those” people who get oddly energized at the thought of creating a budget! Keep this sentiment in mind as you read…
Now you know what a budget is and why you should have one. (How a Budget Can Truly Help You Live a Better Life)
So, what now?
I’ll give you fair warning, this post is a bit technical and if you don’t have much experience with budgets, it may seem overwhelming. But I promise if you follow these steps, one by one, you’ll end up with a budget that makes sense!
Our goal will be to accurately calculate your family’s income and expenses on a CALENDAR MONTHLY basis.
Here is the step-by-step process for creating your own budget:
1. Start with calculating your family’s income.
We want to use net figures, which means your take-home pay, not your salary.
For this example, we’ll assume that all taxes, health insurance, and retirement contributions have already been withheld. This is a family of four, with both parents working.
Wife takes home $1,000 every two weeks (bi-weekly):
$1,000 x 26 times a year = $26,000 annual/12 months = $2,165 per month
Husband takes home $1,200 twice a month (semi-monthly):
$1,200 x 2 times a month = $2,400 per month
Husband also has a second part-time job. He brings home $500 per month.
Household net Income: $2,165 + $2,400 + $500 = $5,065/month.
Fantastic! We have $5,500 to work with on a CALENDAR MONTHLY basis.
2. Next, we’ll identify the family’s fixed, regular expenses.
These are expenses that are the same amount every month and due on the same day every month. They would include debt repayments.
Offering = $550
Rent/mortgage PITI = $1,300
Car payment = $200
Daycare/tuition = $500
Cell phones = $150
Electricity = $125
Gas for the house = $50
Water and sewer = $50
TV = $50
Internet = $35
Netflix = $12
3. Then, we’ll factor in regular variable expenses.
These are expenses that occur every month, but we have more choice over, such as groceries. We must eat, but we can choose which store to shop at, how much to buy, and what day to buy it on.
Groceries and household items = $125/week x 52 weeks = $6,500 per year / 12 months = $542/month
Eating out = $50/week x 52 weeks = $2,600 per year / 12 months = $216 per month
Gas for the cars = $30 per car per week x 52 weeks = $3,120 per year / 12 months = $260/month
4. Now, we’ll consider periodic expenses.
These are expenses that only come around every so often, but it’s important to plan for them.
Personal property taxes = $300 per year / 12 = $25 per month
Automobile insurance = $600 every six months / 6 = $100 per month
Birthday and holiday spending = $1,500 per year / 12 = $125 per month
Annual vacation = $1,000 per year / $85 per month
5. Finally, pay yourself first!
Determine how much you want to save each month and automate it. That is, schedule a recurring transfer from your checking to your saving accounts, or even have your employer direct deposit a portion of your paycheck into your savings account.
Savings = $500/month
College savings = $100/month
Now, we’re left with a straightforward subtraction problem:
Income – Expenses = Surplus (Deficit)
|Husband’s Job #1||$2,400|
|Husband’s Job #2||$500|
|Net Monthly Income||$5,065|
|Water and sewer||$50|
|Personal property taxes||$25|
|Total monthly expenses||$4,975|
The goal is to at the very least break even, but if you have a bit of a surplus, better yet!
$5,065 – $4,975 = $90
The reason it’s best to have a bit of a surplus is that LIFE HAPPENS! Our savings account can serve as our safety net for circumstances such as a serious illness, loss of a job or a major house repair. Our goal should be to build that savings account and not to withdraw from it unless necessary. For an unexpected overnight hotel stay, contribution to your boss’ retirement gift, a special giving opportunity at church, it’s nice to have a little wiggle room in your monthly budget!
6. The last step is to remember to update your budget periodically.
Test it out. Live with it. Track your spending (more on this soon!).
If it’s not working, don’t despair! An unbalanced budget doesn’t mean you’ve failed. Remember, a budget is a tool to help organize your spending and saving.
It’s there to help, not to discourage you.
If you have questions about making your own budget, leave a comment below, or join the conversation on Facebook.
“Blessed are those who find wisdom, those who gain understanding.” Proverbs 3:13
Gracia y paz,
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