Wednesday, August 3, 2011

How to Budget : Step 1

We began posting the last time about the process of writing our monthly budget. One of the principles we work with  through our Total Money Makeover is a written budget at the beginning of every month. Like Dave says, "Every dollar has a name": which means that every penny for the month gets spent on paper before the month begins. It's not always easy, but it's incredibly rewarding; and we usually discover we have more money than we thought. When budget night comes, Caleb uses the Gazelle Budget Software on the Total Money Makeover website and Emily uses Dave's budget forms (found here).
Below are the steps we take to do our budget:  (We'll deal with the first step in this post)
  1. Determine income and pay periods for the month
  2. Name your Income
  3. Make it balance
  4. Allocate your expenses for each week
  5. Prioritize Irregular Income

Supplies:
  • previous month's paychecks and/or projected income statement
  • previous month's budget form (if it exists)
  • calculator
  • Budget forms or legal pad
  • pencil with a good eraser
  • Computer (if using online software)

Step 1: Determine Income and Pay Periods for the Whole Month

Before you can spend your hard earned cash on paper before the month begins, you have to know how much money is available to you. (For those of you with an irregular income, there's a form for that that we will discuss later.) You also need to know when you will be paid so that you can decide what bills and expenses are covered during which week in the month. Emily does the allocated spending sheet at the end of our time crunching the numbers.

We find it easiest to add up the various sources of income and write down the source at the bottom of page 3 of the Dave Ramsey form, but if you're starting from scratch, write it on the first line.

This month, our income looked like this:

School Pay Check 1 + Summer Job Pay Check 1 + School Pay Check 2 + Summer Job Pay Check 2 = Total Income


Our paychecks are currently bimonthly, but they don't come at the same time (i.e. the school pays on every other Friday, the summer job on every other Monday) -- we'll deal with that conundrum in Step 4.

Don't include any income that you aren't actually sure you will be getting.  If you work on commission, tips or hourly, budget what you can reasonably expect to receive, not what you hope you'll earn.  For example if you always work at least 20 hours a week, but can work as many as 40, budget the 20 in this step.  Following this method will help you prioritize your income and especially important if you don't have very much of it.
We'll deal with irregular income in Step 5.

Tips: Make sure you know when you can expect your pay check to be available to you, this may be different from the day you actually get paid if you have direct deposit.
Also, determine whether or not you get paid on specific days of the month, or days of the week.  Is it every other Friday or the first and third Fridays?  The first Wednesday of the month or the 1st of the month?

Next, we'll go through Step 2, in which ever dollar gets a name and life gets prioritized.

No comments:

Post a Comment