I promise, I am trying to get back on track. I started a budgeting series and I plan to continue to share with you what I have learned.
**Disclaimer: I am not a financial adviser or businesswoman. I am just a wife and soon-to-be mom who has been paying our bills for quite awhile, trying to get by without having to work full-time and go to graduate school full-time. Take my advice for what it’s worth. I am sure our system won’t work for everyone, but I am always interested in learning a new method and I thought you might be too.
**ALSO, any examples provided here are EXAMPLES only and not reflective of our actual finances
First, Figure Out Your Take Home:
This can be pretty basic. What are your paychecks every pay period? For those of you who are salaried, this is easy. It is the same pay every time, leaving out the guesswork. For those of us who still work hourly, this is a little tricker. Based on the financial needs in my home, I was able to figure up exactly how many hours I need to work each week to make ends meet. This is what I use for my own income. Fortunately, I often work more than this requirement, but I DO NOT account for it in our bills every week. It is not money I can count on.
A rough estimate of calculating a take-home wage for hourly employees is:
- (# of hours worked) x (hourly wage) = gross salary
- (gross salary) x (0.30) = amount taken out for taxes, insurance, etc.
- This is roughly 30% for most people, so this will not be exact, but should give you a pretty good idea.
- (gross salary) – (30% taken out of each paycheck) = take home amount
If you are someone who works for tips, this gets even trickier. My recommendation would be to monitor your income for a month or two and average it out weekly.
So we have an income. Set this number aside.
Next Step: Calculate your must pay bills. You can simply add these up, OR if you are an excel wizard like my husband, you can put them into excel like I did shown here. If you use excel correctly, you can input a formula to add up different columns, rows, etc. to give you a total calculation of all bills and money leftover after bills are paid each week. This system allows you to allocate every pay period where your money is going before it is gone.
Must pay bills may include things you have to pay for every single month. Examples:
- Vehicle Loan
- Vehicle Insurance
- Student Loan Payments
- Any Outstanding Debt Payments
These are must-pay bills. Notice I did not include cell phones, cable, groceries, etc. These go in the next category level because they can be modified. We don’t HAVE to pay for cable, internet or a smartphone with data coverage. While these are helpful and lovely additions to our lives, they are not essential and can be changed for a short time if your budget requires.
Groceries are a difficult topic for me. I have tried many times to decrease our seemingly excessively high grocery budget and I am not having any luck. If our budget required, I think I could, but this is the last thing I would let go of. I would rather change my cell phone first. I am a firm believer that wellness, including what I put into my body, is vital for longevity and a healthy lifestyle. As I said last week, an ounce of prevention is worth a pound of cure. If I can help it, I am not willing to give up the nutritious food made from wholesome ingredients that my grocery budget pays for. The cost is worth it to me.
This may not be true for you, and that is okay! I am sure there is something else you would rather not budge on. Simply figuring out what that is will help you in figuring out where to prioritize and place your income.
Next, subtract your “must-pay” bills from your income. If there is money to spare, allocate it to your modifiable bills. Subtract these bills from your income as well.
IF there is anything left-over, you can decide where to place it. Some schools of thought encourage us to use every leftover penny toward debt FIRST before establishing a savings account or putting money toward items such as travel, household dreams, etc.
Personally, my husband and I established a savings account of about $2000 while making our monthly payments before throwing all of our extra money toward debt. This gave us a teeny bit of a cushion should something unexpected arise and I felt more comfortable with that.
So, now that you have these tools, you can develop a budget. As you can see in my example, there is leftover money every week. Ideally, this money would be put on a debt payment before anything else (after you reach your savings goal, of course). I recommend choosing one loan or debt payment to attack first, paying it down each week until it is gone.
Next time I address the budget, I will be updating you on our modified cash envelope system, the idea of “snowballing” and where we have decided to place our money every month!