I’ve had a couple of friends ask how I contribute to our monthly budget so I thought that I’d blog about my efforts. It’ll stretch it into a couple different entries as there are many facets to how I have been contributing. Some of these strategies may not be for you but hopefully it’ll explain how we save money each month.
Today, I’ll start with the basics.
I was taught very early in life about budgeting. My mom and dad, to the best of my recollection, never sat me down and “taught” budgeting but I can’t tell you how many times I heard their envelopes story. When my mom and dad were first married, my grandfather taught them to use a set of envelopes to budget their finances. They knew their monthly expenses and divided that number by the number of times that they were paid each month. They placed that amount in each envelope. They budgeted and I learned. I never used actual envelopes but I did use spreadsheets. I’m kind of geeky about spreadsheets and actually enjoy the sadistic pleasure of creating formulas and working the budget. You may find envelopes work best for you but regardless of what method you use, the principles are basically the same. So, let’s look at how to build a budget.
1. Know your income. What do you make? If you bring home $35,000 per year, you need to live within that $35,000 per year. So, find your last paycheck and take note of what that final figure is that is going into your bank account. Make sure you are not using your gross income figure (in other words, you need to pay income and unemployment taxes, health insurance, retirement, etc, etc, etc.). I find it extremely helpful to know your monthly income figure. Like, memorize it. This is a huge part of success or failure for your family. So, going with the $35,000 per year figure, I’m going to divide that by the 12 months in a year.
$35,000 yearly bring home income divided by 12 months per year = $2,916.67 per month
2. Know your regular monthly expenses. Grab a sheet of paper (or a spreadsheet) and start listing all of your expenses. I usually bring up my online bank account and work from the numbers that were withdrawn from my account in the past month. By doing that, I’m less likely to miss an expense (disaster!) or remember a monthly figure incorrectly. After you have listed all your monthly expenses, total these expenses. This is how much you owe each month.
For example, your monthly expenses list should look like this:
Insurance (house, life, auto, etc): $200
Auto loans: $500
Total Monthly Expenses: $2,915
3. Compare your monthly income and your monthly expenses. Realistically, you should have done this before committing to those expenses BUT most of us start in the middle of the game. So, where are you standing? Are your expenses greater than your income??? If they are (as ours were at one point), you will need to make some reductions in your spending.
4. Live within your monthly income. This is, honestly, the hardest part of having a budget. You have to live the budget after you write it down. Say no to extras that are actually just “I wants” and not “I needs.” Even re-evaluating simple “I need” purchases can help reduce your expenses.
I’ll blog a little more later on what our next step was after we created a budget. I’ll show you how we decreased our expenses and increased our income (without adding another paycheck).
BTW. Please note: I’m not a debt counselor or any type of professional who is qualified to give out actual financial advice. I’m simply telling you some of the ways that I am helping stretch our monthly budget. If you want to read actual advice from a qualified debt guru, I recommend Dave Ramsey.