Posted by: Alexis Ignatovich
Math is hard. As I would like to think Dwight Schrute (from “the Office”) might say “FALSE! Math isn’t hard. You just aren’t adding right! Move over and let me show you.” Not to say that what you may have come up with is not functional or even practical, but if what you have isn’t working for you one of two things may be the reason. Either you aren’t sticking to your guns or your math is probably wrong. There is also the possibility that you have stumbled on this post and you simply do not know how to make one.
There are a plethora of budgeting posts floating amidst the vast expanse of the interwebs. SO much so that you will start to believe that you need 3 retirement accounts, 4 savings accounts and 3 checking accounts just to keep it all straight! MALARKY I SAY! What I DO suggest is at least 2 checking accounts and a savings account at the absolute bare minimum. But we will get to that later.
Let’s start with what a budget REALLY is. Most people think that a budget is like a financial diet limiting you from eating that damn cookie you have been fantasizing about as you gnaw your celery stalk begrudgingly. FALSE! A budget is just an estimate of income and expenses during a set period of time. To plainly put it, money you have minus what you owe and anything left over is yours to do with however your heart desires. BOOM! YOU JUST GOT BUDGETED!
Let’s get basic!
Step 1 – Start with what you owe NOT what you make
Make a list of all of your expenses and the total amount owed. Beginning with Credit Cards, followed by static necessities such as transportation costs, rent, cellphone, etc. (for non-Credit Card items just multiple your monthly amount by 12). Do not include your spending cash or “funny money” as I like to call it.
Your list should look like this:
Step 2 – Break it down now
Using a full year as our time period, create a column for every month and input your minimum required payments. Expenses feel more manageable when you look at them in smaller increments.
In this example we have a total monthly expense of $1,610 every month.
Step 3 – SHOW ME THE MONEY!!!
Now you take your monthly income in total and figure out how much excess cash you have.
For our example let’s say that this person makes $2,400 per month (after taxes).
Simple math states that $2,400 - $1,610 = $790
WOOHOO!! $790 a month of funny money or for personal savings. Your possibilities are endless (just like this topic). But, now that we have our basic budget template in place and a good idea of what excess cash we have remaining at the end of the month, we can start breaking down our paycheck into the appropriate accounts. Personally I suggest having at minimum 2 checking accounts and 1 savings account.
Checking account #1 – Funny Money – Use this for miscellaneous spending outside of your listed expenses. Try to only put your allotted amount for frivolous spending here weekly. This will help you manage your spending tremendously. If you are running out of money by the end of the week, you are about to exceed your budget.
Checking account #2 – Bills Only – Use this account ONLY for your bills. Do not even get a debit card for this account. You do not want to accidentally pay your bar tab with your rent money.
Savings account - Future, vacation, emergency fund, etc. – Any excess cash should be put here for your rainy (or sunny) day. Every penny counts.
In this scenario we find that this person can have roughly $100 a week for spending cash and can save over $4,000 in 1 year!
See… Not so hard after all.