When I was 16 years old I got my first job… and my first traffic ticket. When I received my first paycheck, my mom told me that I could make payments on that ticket, this way I would still have some money left over for myself. This insignificant (or so I thought) conversation led me right onto the financial struggle bus.
Now don’t get me wrong, my mom was absolutely right. I needed to save money from my paychecks to pay for food and gas. What I didn’t know was how to budget that money so that I wasn’t overdrawing on my accounts.
Years later it would still affect me.
After I joined the military, I learned that everything I did before or outside of the military still affected my career; This included my dire financial situation. Shortly after arriving at my first duty station, my commander had required me to come up with a plan to get myself out of debt and keep it that way.
So, over the next few days, I worked diligently on a spreadsheet that showed all of my debts and income, as well as being able to track my spending. I had created my first budget!
That spreadsheet has stuck with me throughout the years. I have been able to adapt it to my changing lifestyle including marriage, divorce, kids, and even job changes. Below I outline the steps I took to create a basic budget.
Choose your medium. Use a notebook, create a document on the computer.
Head on over to the FREE resource library to download your copy of the interactive Budget Worksheet!
Divide your income. At the top of your paper (or document), create two small tables that include Income, Bills, and Remaining. Next, divide your paychecks for the month into two pay periods. If you are paid between the 16th and the end of the month, that is your paycheck for the 1st of next month. If you are paid between the 1st and 15th of the month, that is your paycheck for the 15th of the current month. In your tables, write down your estimated paychecks for each pay period.
Whether you get paid every two weeks or every week, you need to determine if that paycheck will cover the first half of the month or the second half. Doing this not only ensures you are accounting for money paid to you before being designated for bills, but you might end up with two extra paychecks throughout the year!
If your paycheck amounts vary, look over the last few months to gather a low estimate; Or, if you are paid hourly you can quickly calculate your (estimated) paycheck using the following formula:
Hourly Rate x Hours Worked x .7 = estimated paycheck
List your bills. Now that your paychecks are on a bi-monthly pay system, your bills should be too. First, there are two kinds of debt: recurring bills (things like rent, gas, insurance, etc.), and outstanding debt (anything with a set limit amount like loans and credit cards). For this section, we are only working on recurring bills.
Make a list of all recurring bills due for the next month. Try to organize them by pay period (those due before the 15th (1st of Month), and those due after the 15th (15th of Month). Be sure to include the name, an estimated or actual amount due, and the due date or pay period.
Sum it up! Add up all of your bills for each pay period and write the total in the Bills section of your income table.
Calculate your leftovers. Now, subtract your bill total from your income for each pay period. This is how much money you have remaining until your next pay period.
List your outstanding debt. Below your monthly bills, list out all loans or credit cards that have a current balance. At a minimum include the name, amount owed, the card or loan limit, and the monthly due date. If you know the APR (interest rate) it is good to include that as well, but not necessary.
Recalculate your leftovers. Subtract any debt payments that cannot be changed from your remaining budget for each pay period. (For instance, a student loan automatically deducts $332 from your account on the 3rd of each month. Subtract that amount from your 1st of the month pay period.)
See where you can make payments. Look at your cards that have a large APR (or large amounts owed if you do not know the APR). You’ll want to pay those off first, but you’ll need to ensure that you aren’t collecting late fees from other cards by not paying them as well.
Start by subtracting your minimum payments from your leftovers. From here, see if you can make any of those payments bigger. This is the rollover method where you get your outstanding debt with high interest/amounts paid off first, then add those payments to other debts as they are paid off.
Once you have calculated all your bills and outstanding debt payments for each pay period, you should have a solid estimate of the amount of money available for other things such as gas, food, and fun.
FOOD FOR THOUGHT
When estimating how much money to spend on groceries, note that the average person can spend between $50 to $100 each week on food, and each additional family member adds between $50 to $75.
I found it hard to estimate how much gas I would need in any given week, so I adopted a credit card dedicated to gas, then pay it in full at the end of each pay period. This makes it easier to calculate the cost in with my other bills.
Let me know in the comments what your biggest hurdle is with budgeting!
Everything we do is linked in some way, so be sure to check out my other posts on quick and easy life skills.