When you have a budget it can be a guide to help you control your money, instead of it controlling you. But first, you have to know what you are obligated to spend each month, today we will tackle it.
Last time, we talked about the importance of a budget. And since you are back I’m going to assume, you see you really need a budget.
But you need help to set up a reasonable budget, one you can follow.
Maybe you’ve never really considered how to budget. That’s all right, during the series I’ll take you step by step in setting up a budget.
It all comes down to balancing what you having coming in with what you are paying each month, and tracking it.
Setting Up a Budget, Determining Your Monthly Bills
Track your Expenses
The first thing I would suggest you do is to track your expenses. You can do this by getting out your last 2-3 months’ bills or pulling up your accounts online. If you have bills that come less often, get those too.
Now start, by writing down all your monthly expenses. Every bill you pay each month should be written down first.
Then add in the bills you get every other month. Then finally add any bills that come quarterly or less often. If the bill amount changes each month then you may want to pull out as many back bills as you have and take an average.
Start with the last 3 months to give you a good average to start. You can adjust the amount later if needed.
Average your Bills that Vary
For instance, our electric bill, runs almost the same year-round, except for January, August, and September. I might choose to use an average for this bill.
By averaging a bill, I know that some months, I will have extra money to save towards the months when the bill will be higher.
By storing the extra money on the months that are below average, I can build up a reserve to cover those higher than average months. This way in on a month with a higher bill I have the money waiting for me to use.
Handling Irregular Billing Cycles
Some of our household bills only come every other month. When I am determining how much to set aside for those bills, I take the amount the bill is or the average if it varies, and divide by two.
That will give me the amount I need to put aside each month.
I put that monthly amount away each month even though I only pay the bill every other month. So the money is sitting there waiting, instead of me scrambling to find the extra money in the budget I need to pay the bill.
For quarterly bills, you’ll divide by three to get your monthly rate and so on.
Once you know the total amount of money needed to cover your monthly bills you can start building your budget.
After you have determined the cost or the average cost of all of your monthly bills. We can move on to the next step.
The Next Step
The next step will be to determine how much you spend beyond your bills.
Do you know how much you spend on food?
Do you know how much you spend on other items like clothes, out to dinner, or just everyday stuff you do?
Next Up, I will explain how to gather all the info you need to determine your spending in these other areas.
Until then just tally up your bills. Then congratulate yourself, you are one more step closer to knowing where your money is going each month.
See the first post in this series, The Importance of a Budget
See all the money related posts by clicking here.