I will admit that this whole blog post is a little embarrassing for me........it came about in two ways. The first, is that one of my friends had asked me to write about creating a budget - twice.... (apparently I had some kind of aversion since I didn't do it the first time). The second is that someone recently asked me what my budget is to live where I do (Sedona,AZ) which BTW is known by some as "poverty with a view".
OH THE SHAME!! I had to answer "I have no idea".
That wasn't totally true of course......... I know what all my bills are (approximately) but I have never actually figured out how much money I NEED to survive. I have just been going with the flow. Thankfully that has been working. But I did get a bit of a wake up call.
So, I sat down and did my budget (quite quickly and easily I may add) and I would like to share the 4 basic steps with you.
The most accurate way to begin is with what you know: Last years amounts
STEP 1 - Pull out and add up ALL your sources of Income from the past full year (include salary, rental income, dividends etc). ADD THESE UP
STEP 2 - Go through your bank statements and credit cards (from last calendar year) to list and total your Fixed Expenses (the ones that remain the same amount every month). These would include things like mortgage payment/rent, car payment, memberships, some utilities and insurance. Anything that you pay once yearly should be added to this list as well.
STEP 3 - Go through your bank statements and credit cards (from last calendar year) to categorize, list and total your Variable Expenses (the ones that are inconsistent all the time). The reason I suggest categorizing this list is that it can be VERY long if you leave it all separate. This list would include things like gas, car repairs, personal items/care, clothing and entertainment. Don't forget to add a MISC category - this is where you should put all the random cash withdrawals that you have no other record of.
STEP 4 - DO THE MATH:
a) Add your fixed and variable expenses together. This number will give you the amount you spent last year and therefore tell you how much money you needed to make to cover it. Check it against your Income amount.... If you earned a lot more then you spent it's time to start thinking about investing!!
b) Divide your total expenses amount by 12 and this will give you the amount that you need to cover per month.
Now, the big question I am sure is how do I track this as I go to keep myself on budget?......Well, you're not going to like the answer: TRACK YOUR DAILY SPENDING!
Start a Spreadsheet for every month. At the top add in your Fixed Expenses and then make it a habit to total what you spend and record it every day.
This is something that I am going to start to do to keep an eye on where, when and how much money I am actually spending!
I hope this was helpful and stay in the positives!