Create a Personal Budget That You Can Use
One New Year’s Resolution You Can Keep
On January 1st you vowed to yourself to eat better, workout more, and... stay out of debt. Your trips to the gym may have gotten farther and fewer between, but that last resolution is one you should really keep. And daunting as it may seem, drafting a budget and sticking to it, is not as hard as you think. Creating and maintaining a budget is not only good for your financial well-being, but also good for your peace of mind.
If you have any semblance of a checkbook, or financial records, break them out. Look over your bare minimum expenses, that is, the bills you absolutely must pay to get by without creditors calling to collect. These include rent/mortgage, utilities, student loans, taxes, transportation, car and home insurance, medicine, and anything else you need to live (need being the operative word). Add those items up, and subtract from your monthly income for February. Yes, as in 4 weeks pay. I will explain this later. If this is difficult for you, use what I call the "Rule of 13". Take your annual net income and divide it by 13.
Large or small, there should be an amount remaining. (If you are negative, you are in trouble...If that is the case, see "Why are you Broke?", http://hubpages.com/hub/whyareyoubroke). This amount will cover the remaining expenses you have. Let me show you, using a $45,000 salary as an example:
Car payment: $200
Car insurance: $80
Income (take home): $33,000/annually
$33,000/13 = $2,538/month
So this individual has $1,083 per month to cover all of their additional expenses.
Now, write out everything you regularly spend money on... groceries, going out, education, healthcare, clothing, pet supplies, vacations, membership fees, work expenses. Use your checkbook, or credit card statements to ensure you are not forgetting anything. List the reoccurring expenses, and then the unplanned ones. For example:
Health Club: $50
This person would have then $183 per month to cover her additional expenses, such as gifts, vacations, and unexpected costs like car maintenance. And that's without saving a cent!! Or is it??
Here's where the "Rule of 13" comes in. If you get paid on a weekly basis this is easy. If you are paid biweekly, it is a little more challenging, though all it really requires is a bit more willpower. Let me explain. By using the "Rule of 13", you save one month's worth of salary per year! That's right, by living on 4 weeks of pay per month, you spend 48 weeks worth of salary. Leaving 4 weeks of salary to go into savings over the course of the year! All you must do to adhere to this is be sure you are putting anything you deposit into the bank above and beyond your monthly allowance, in this case $2,538, into a savings account.
So, savings are covered, and our example has $183 per month to cover all her miscellaneous costs. Put this amount per month into savings account as well, and here is what to do. Determine what your miscellaneous large costs are, for example, Christmas gifts or vacations, and budget for them. Then also budget for the small miscellaneous costs in a lump sum. Here, I have also included an ‘Additional Savings' category. (If you can manage it, you should aim for your annual savings to total the maximum deductible IRA amount, currently $3,000. For more info, see "Roth or Traditional IRA?" http://hubpages.com/hub/rothortraditionalira).
Here is how it would work for our example:
Additional Savings: $30
That way, six months from now, when your friends are talking about a road trip to Miami, rather than trying to scrape up the dough to go, you have $300 effortlessly socked away to use stress free.
Sure, it takes work, and a little bit of willpower. But trust me when I say that buying yourself that new purse will be a lot nicer, knowing you have $200 budgeted for it anyway. And you can treat yourself, without sacrificing paying the electric bill to do so.