The easiest budgeting plan you will ever use
Budgets Made Simple
There is lots of budget advice out there, some good, some bad, some that make bad look good (yeah, that bad... but I have found that the best budget is a simple budget. In this simple budget you just take your income (after taxes), and then subtract your fixed expenses and your variable expenses. The left over portion should be distributed to savings. If you don't have anything left over, you may have a problem living within your means. There are 2 ways to fix this:
2. Spend less
Sounds simple, right? Well, most people are not able to do this... which is probably the reason most people also have so much credit card debt.
It's really easy to say "I should be making more money", but even if you somehow manage this, you will find that even with your increased income, you are still just getting by. The real change that you need to make is spending less, and the key to that is evaluating your budget. As I mentioned above It is important that your simple budget have 3 categories:
1. Income (after taxes)
2. Fixed Expenses
3. Variable Expenses
The reason we break the simple budget down to 3 categories is because generally only 1 of the 3 can be easily changed. Can you guess which category it is? If you guessed Variable Expenses, you are correct (sorry no prize, but you should feel good about yourself anyway). While it is possible to change income and fixed expenses, it ussually takes time and a lot more work. I am going to provide my own simple budget below as an example and show how you can iron out any wrinkles that may pop up in yur own simple budget.
How do you budget?
My Simple Budget
Monthly Income (after taxes):
Rental Income: $1350
Total Monthly Income: $3,550
Property Taxes: $450
College Loan: $300
Window Loan: $136
House Maintenance Fund: $100
Roth IRA: $100
Property Insurance: $75
Water Bill: $75
Cell Phone Bill: $75
General Savings: $50
Emergency Fund: $50
Car Fund: $50
Total Monthly Fixed Expenses: $2886
So, after looking at my simple budget we see that I only have $664 ($3550-2886) to spend on variable expenses. Now what I like to do is to break this down weekly, so that I don't end up overspending by the time the end of the month comes. So, my weekly variable expenses are $166 (664/4).
Weekly Variable Expenses:
Gift/Rainy Day Fund: $50
Now I could easily save the money that I allocate to the variable expense accouunt, but life is short, and I feel like I already save enough in my fixed expenses account... so I am happy with the way my easy budget is working out right now.
What if the simple budget doesn't work?
What if you write out all 3 categories (Income/Fixed/Variable) and you are already out of money before you are finished with the fixed expenses. Well, in this case you need to re-examine your simple budget, especially the monthly fixed expenses to see what could slide down to the variable expenses... In my example I mentioned my college loan, cable/internet, and Roth IRA, which add up to a total of $525. I consider these all fixed expenses because I have to pay them every month, but the truth is that I don't have to... I want to because I want to pay off my loan quickly, like TV and surfing the web, and saving additional money for my retirement, but these are not necessities to me and could, if necessary, be put into the variable expenses category. Now lets assume that my income drops by $1000 per month (knock on wood). Well, i know i need to decrease my spending so I move the items that I listed above into my variable expenses category and then we do the math to see what can stay and what can go....
So, in this scenario I have an income of $2550, fixed expenses of $2361, and variable expenses of $189 (or $47.25 per week). In this case, having a lot less options my variable expenses per week would probably consist of:
Additional Savings: $10
Gift/Rainy Day Fund: $10
What if I still can't balance my simple budget
If you are still unable to balance your simple budget, you are going to have to take extreme measures: you might have to decrease your tandard of living by moving from a house to an apartment, or from a 3 bedroom apartment to a one or two bedroom apartment, or maybe even move to a less expensive community.
Another option would be taking a second job, or starting to create your own passive income through online writing.
There are options out there, you just have to be proactive. Don't just sit there worrying about the credit card interest you are accumulating. Do something about it! Do not let your current financial woes crush your future...
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