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In this final step of the process. This is where you plan your month before you start it. This is like an architect who begins the process of building a house. You start with blueprints and then you begin the building process with raw materials to start the foundation. Your budget and debt snowball is the blueprint and the building of the house are the actions you take to get out of debt (budgeting).
You can do this on Microsoft excel or a notepad.
Step 1 Income: Start your month with your first paycheck and have this at the top of your sheet.
Subtract your fixed expenses first. This will let you know how much get to spend for the rest of the month. Then subtract the amount you may need for variable expenses. This will give you the remainder that you can spend on anything that may come up.
At this point, every time you make a purchase subtracted from your paycheck amount. This is going to keep a running tally of how much you can spend for the month. This will keep you from going over budget
Step 2 Fixed Expenses: Find out what your monthly recurring expenses are. They are typically savings, cell phone, subscriptions, donations, student loan payment, car payments, health and life insurances. It’s best to know theses expenses before you get caught in a crisis. You will probably end up having to use your credit card to pay for these expenses, and then get further into debt.
Savings is first on the list because your goal will be to live the remaining money. Trust me, you will be able to make better judgments throughout the month with the rest. You can start saving with 1% of your income. Get your feet wet, and over the months, you can increase the amount you save by 1 more percent.
My car insurance is paid every six months, so I take the total amount and divide it by six. It helps me to break down the payment into smaller manageable amounts instead of having to come up with $360 in one month.
For instance, if you have a car insurance to in January for $360 you would take $360 divided by six to get $60 dollars which would you will put away in either a savings account or leave in your checking until it becomes due in January.
Step 3 Variable Expenses: Like I said in the previous post, we are bad at estimating our true expenses. What we want to do here is get a general idea of what we may be spending in each category of non reoccurring expenses and then add 25%. It’s better to overestimate than underestimate your expenses.
These are things like groceries, gas, and other miscellaneous expenses that you may come up with over the month.
Remember for the categories, like groceries, make sure to add what you spent as an expense, and then subtract from what you had set aside for groceries for the month.
Step 4 Tracking: Take your notepad and and pen, and every time you use your debit card, credit card for use cash, will write down the expense. What you are doing is keeping a register of the expenses you have during the month.
The act of writing your expenses will keep you accountable to yourself. It also makes you think about what you’re buying. For instance, will I need this extra water bottle? Will this handbag be worth it in the future?
Step 5 Make Adjustments: If this is the first time you’re making a budget, you will make mistakes and overestimate expenses. This it took me a few months to get a handle of what I could pay for variable expenses. It’s a learning process and the more you track, the more practice will get by doing it.
Let me know your thoughts and if you have any better ideas please let me know.
See you soon