First: List your net income from all sources for the upcoming month.
This is the pay you take home, after taxes. If married, list both you and your spouse’s. Include full-time as well as part-time jobs, Social Security or disability payments. List any other sources of income. If you don’t have a consistent in-come, review your paystubs from the previous year. Figure out what you earned and divide it by 12. That will give you an average of what you earn every month.
Second: List all of your expenses
List your “fixed” expenses, costs that stay the same each month such as your rent or mortgage, car payments and insurance premiums. Next, list the expenses that vary from month to month, such as entertainment, recreation and clothing. Anticipate periodic costs that aren’t billed every month, such as home maintenance or li-cense tag renewals and fill in those columns as needed when they pertain to that particular month. It’s important to identify necessary expenses first, then prioritize the rest.
Third: Subtract your costs from your income
If you’re spending more than your income, figure out where you can cut or lessen your expenses. Maybe it’s your grocery bill or that cup of coffee you pick up every morning. Adjust your budget accordingly. If you’ve made all the adjustments you can, but your expenses still exceed your take-home pay, take another look at your finances. Ask yourself 2 questions about every expense: Can I do this with less money? and Do I really need this? You may need to earn more money by getting a part-time job. You could sell an unwanted item, do odd jobs or turn a hobby into a source of income. Lowering spending is a lifestyle change and is not easy. Spending less than you make is an important habit to have to make a budget work.
What's Next?
Minimum payments should be made on everything. Any money going toward retirement plans should temporarily stop until your debt is paid off. Any money left over in the budget should be assigned to saving $1,000. This is your emergency fund. Save this as quickly as possible. If you can only save it gradually, put aside any money that’s left over from your budget each month. After saving for your emergency fund, paying down debt becomes your priority. Call Trinity and talk to a counselor about addressing your credit card debt by consolidating your accounts into one lower monthly payment and reducing interest rates.
After all debt is paid-in-full, saving 3-6 months of living expenses becomes your emergency fund goal. Every dollar needs to be accounted for in your budget. Your income minus expenses should equal 0. This is a zero based budget.
Remember, Each Month is Different
You’ll need to adjust you budget monthly, because things change. Some months you’ll have a holiday, vacation or birthday. Think ahead and prepare for those expenses. Don’t be unprepared by letting those occasions sneak up on you. A budget is not meant to complicate your life. It is a great financial tool if you make it achievable and realistic. When you begin seeing what money is coming in and going out, it will make your life easier. Too strict of a plan that is overly tight is unrealistic. If you don’t allow some flexibility, your plan will fail. You may have not budgeted enough for some areas and too much for others. It will take a few adjustments to reach a realistic level. You should review your plan monthly and make the changes necessary before the next month begins. A good plan changes as your life changes.
Budgeting Tools
There’s no underestimating the importance of formulating a budget. It’s a process that helps you develop the self-discipline needed, to manage your money and keep needs, wants and desires in their proper alignment. A spending plan ultimately forces you and your family to develop disciplined attitudes about earning, saving and living within your means.