Part 2: Now What?
Happy Hump Day! Hopefully you have had a chance to sit down, by yourself or with your spouse, and decided WHY you need a budget and what categories are appropriate for your budget. Now things get a little more detailed, because you have to actually figure out how much money you have to budget with and how much to budget for each of those categories.
Of course, you could just go and put in numbers for every category because that’s what you think they should be and try to stick to them. But if you budget $200 for groceries and then 2 months from now, realize you are actually spending $500 a month, you may just give up budgeting right then and there.
Obviously, I like numbers and budgeting– give me my YNAB and a spreadsheet and I can sit here for hours– I know I’m a nerd. But since everyone is not that way.. I’m going to tell you the way that I think would be best to get started for this step. It will take you a while that first time of doing it, but then you’ll see what you are spending and should only need to update your budget from time to time.
So, again, I’m going to give you my little plug for the budgeting software I use, YNAB (You Need A Budget). This link is my referral link and will give you $6 off your purchase. Unless you are really good with spreadsheets or love writing a bunch of stuff down, I think it’s the easiest way.. I’m telling you. If you aren’t sure, you can always do the 34 day free trial to see if you like it.
Monthly Income – how much money do you make?
If you are paid monthly this is a super easy step for you. However, since most of us aren’t you’ll need to get out your calculator.
So if you are paid weekly and your paycheck is $750 you are going to get 52 paychecks a year for a total of $39,000. Either you can be conservative and budget for the at least 4 paychecks you’ll get every month which will be $3,000. Or, you can divide the $39,000 by 12 months for a total of $3,250 a month. I prefer to be conservative and plan on the $3,000 a month and have 4 “extra” paychecks throughout the year to make large snowball payment with or build up savings.
Maybe you get paid every 2 weeks though, or bi-weekly and your paycheck is $1500. That means that you get 26 paychecks a year. Either you can be conservative and budget as if you make $3,000 a month or you can take your annual net pay of $39,000 ($1500 x 26 paychecks) and divide that by 12 months and come out with $3,250 monthly. Like I said, I prefer to be conservative and plan on the $3,000 a month and have the 2 “extra” paychecks throughout the year to make large snowball payments with or build up savings.
Lastly, you may even be paid semi-monthly, which I was at my last job where I was paid on the 15th and last day of the month every month. I’m not sure if it’s the same everywhere, but based on the $39,000 annually my paycheck would have been $1,625. There is no need for a judgement call on how to figure it here, because you’re guaranteed 2 paychecks every month this way which would total $3,250 monthly.
But, what if you have irregular income? You’re paid hourly and aren’t always guaranteed the same amount of hours or tips or commission or whatever. Well, in this case you’ll have to be a little more creative. This is the way I would do it. If your pay is not seasonal, meaning you make more in the Summer because of whatever industry you work in, then I would see how much you made over the last 2 or 3 months. Let’s say in December your paychecks totaled $3,275 and in January they were $2,850. The average of those is $3,062.50. This one will take a lot of judgement on your part. Because I am conservative, I would do my best to budget on the $2,850.
Basically, if your pay is irregular, I would budget on what you know you will get. If you have $3,000 worth of expenses budgeted, and only make $2,800 that month you’ll have a hard time so go with what you know and use the rest as a bonus 😉
How will you budget your income– conservative like me or with the higher monthly amount?