DISCLAIMER: If you’re self-employed, like me, and money comes in sporadically and in varied amounts, ignore this post and go to “Creating a Budget When You’re Self-Employed: Step 1”
The goal of this step is to create an expense map. We’ll work on decreasing your spending , creating your budget system, and growing your money in later steps.
Get out a piece of paper and a pen. If you’re more of an online/app person, we’ll get to that, but for right now, it’s much easier to get it all out on paper.
- On the first line, write what you make each month. Operating under the assumption that you get paid bimonthly on the 1st and 15th of each month, draw a vertical line down the middle of your paper to about half the page and write “1st” and “15th” on each side. Divide your income by two and write that on that line as well.
- Think of all of your recurring bills (use my list of budget categories to make sure you cover everything) and write them down under the column of the dates they fall into; in other words, dates from the 1st to the 14th fall under the “1st” column and dates from the 15th to the 30th/31st fall under the “15th” column. When you’re done, add up the items and put the total under each column. Draw a horizontal line under both columns.
- Now consider your recurring expenses. How much do you usually spend on groceries? If you’re not sure, put a higher number, or one you feel comfortable is accurate. If you have absolutely no clue, go back to your credit card statement and add up everything you spent on groceries in the last month. Add it on the line under the horizontal line you just drew.
- Now think of other expenses you have during the month: charity, gas, manicures, restaurants, etc., and add them on as well. Use the list of budget categories for this too.
- What about household expenses like shampoo and laundry detergent? These are hard to budget for because you tend to buy them sporadically; when they run out, you run out to a store and buy some more randomly. This is inefficient and expensive and we will change this! But not today. In the near future, you’re going to make a household storeroom and stock it every few months. But for now just put an estimate of what you think you might spend on these sorts of things and add it in.
- Add everything up underneath the horizontal line and divide it by 2. Add that result to the total in the 1st column and to the total in the 15th column. Now subtract those numbers from what you earn. See what’s happening with your money. Do you have enough to cover everything? Can you put aside money for savings? In the next step, we’ll talk about where you can make cuts; cutting your cable, for example.
Do you have money left over? Great! Hold on to it for now because if your expense estimates were off or you forgot something, you’ll need that extra money.
Once you’re satisfied you have everything clear on paper, you’re done with the step!
In Step 2, we will create our budget battle plan. See you there!