Some people dread making a budget, me? I absolutely enjoy budgeting! I budget my money every 2 weeks, even though I already know what I'm getting paid. Yes I know, my nerd is showing, hush. But it’s just something about knowing where every cent is going. Or how much more I can cut back on here or there, or how much more I can allocate to my retirement funds that make me really happy. Listen, I have ZERO intentions of working until I die. I’d elaborate more on that in another blog.
So what is a budget? Simply put, a budget is a plan that depicts how much money needs to be spent on what and by when. That’s it! So in order to make a budget you need to look at 2 things: income and expenditure. In laymen’s terms, paycheck and bills.
How do you make a budget? The first thing you want to do when making a budget after identifying your paycheck amount and your bills (with the due date) is to write them down. I’m very old school (don’t judge me) so I like to write out everything. But you can feel free to annotate your payments and bills anyway that’s most comfortable to you. For example, you can use an Excel Spreadsheet, an app, a Budget Worksheet or any other tool you feel comfortable with.
It is important to pay attention to when your bill is due and I will tell you why. If you pay your bills as soon as they are mailed/emailed to you, you may run out of money! Trust me I’ve done it, and for the life of me I couldn’t understand why I was living paycheck to paycheck. I mean, I was making way more money than I used to and I wasn't spending frivolously.
I have big ambitions and let me tell you, I never wanted to give a creditor the opportunity to record that I was either late or that I missed paying a bill. So as soon as that bill came out, I was running to pay it the very next day. No bueno! Most companies give you about 2 weeks before a bill payment is due. Credit card companies give you about 25 days give or take. So in order to ensure that you don’t run out of money, it is imperative to check the ‘Due by’ date and pay your bill as close to that date as possible. This is especially important if you are in the lower income bracket.
Once everything is allocated, it is now time to schedule which bills/expenses will be paid and when. One of the things that I have been using for YEARS is a Home Finance and Bill Organizer I picked up for $1.99 or so at the local 99 cent store. This little organizer has been a life saver for me. I love it so much that I have bought some for other people as well.
The best thing about it is that it already comes divided into 2 columns which supports my bi-weekly salary. So on the column on the left, I write down the bills/expenses that are due by the end of the month. I use my paycheck on the 15th to pay those. And on the column on the right, I write down the bills/expenses that are due by the middle of the month. I use my paycheck on the 1st to pay those. Pretty straight forward right?
As soon as the money hits the bank, I whip out my handy dandy organizer and I pay the bills that are due. I put a check mark next to the bill once it’s paid to avoid double paying any of my bills, or worse not paying a bill at all. I then close my organizer and do my celebratory dance. Aye, aye, aye! There is nothing that makes you feel like a proud, responsible adult like handling your bills/expenses like a boss!
The last thing I do with my budget is a quick calculation to see how much money is left in my account after successfully handling all bills/expenses for that pay period. Once I arrive at that amount, I then decide if I want to add more to my emergency fund, retirement account, or if I want to keep all of it to purchase some of my wants. The point is to budget down to the last cent.
When making your budget, it is important to note that you can add anything that you want to your budget. By that I mean, if going to the movies is something that you absolutely love to do and can afford to do, then add a ‘Movies’ row to your budget. Allocate a sum of money to that activity when your budget allows. The trick is though; to always ensure that ALL of your bills/expenses are properly met before adding non-necessities or activities. I cannot stress enough how important budgeting is to your overall financial health.