So if you’ve done the previous two posts (Money Management – Introduction, and Money Management – Status Check), you should have a good idea of what your financial house looks like right now. So now that you know where you are, you can decide where you’re going. Budgeting can be hard and painful and can create some emotions we’d rather not deal with, but if you look at it as your tool to make your money work for you, to work towards your financial goals, and become a master of your money instead of the other way around, it’s certainly invaluable. So let’s get to it!
- List out your regular, essential bills
List your rent/mortgage, electric bill, water, trash, child support, etc. Things you know come every month and need to be paid. For bills that vary, such as electric and water, go back over your last couple months and pick the month that it was the highest. You always want to overestimate than under – that way, when the bill comes in and it’s less than you’ve budgeted for, the left over money can be put towards your goals!
2. List out irregular charges
Car maintenance, medical bills, vet bills, any irregular bills you may have will happen every couple of months, but there’s no getting around them. Decide how much you’ll put aside into savings or a separate checking account for these one-off bills. Dave Ramsey talks about creating a $500 savings account to have for these mini-emergencies.
3. Add your monthly expenses for gas, food, entertainment and shopping
I’ve found that these are the four categories that are most flexible. If you’re running low of funds at the end of the month, you can always raid your pantry for supplies to avoid a run to the grocery store, or stay in that weekend and not spend any gas. Look at the past couple months and determine how much you’ve spent on each category. Always budget for your most expensive month. Then your goal can be to lower these expenses, but you’ll always know you’re covered.
4. How much is left?
Figure out how much money is left over at the end of the month! If you’re in the red, and spending more than you’re bringing in, take another look at your budget and see where you can cut costs. The next post I do will be about how to cut your daily costs. If you do end up having money left over at the end of the month, this is the right time to talk to your spouse about your financial goals. That money you have left over will go to your goals – paying off debt, saving for that vacation, retirement, etc.
So if you’ve budgeted correctly, you’ll have put down how much you’d spend on your most expensive months. The challenge now is to figure out creative ways to save a buck here or there to apply it to your goals! This is how you take control of your money and make it work for you, instead of the other way around! And it’s a great feeling!