The first two steps in creating a budget

I outlined why having a budget is important two weeks ago, and now I am going to outline a step-by-step process to create a budget starting with the first two steps: gathering and calculating your financial and expense information.

1.      List Your Income: Your income needs to be net pay or revenue meaning your take home pay or the amount deposited into your bank account each pay period. Income will include your paycheck(s), rent revenue, pension benefits, Social Security benefits, or any other sources of monthly income.

2.      Calculating Your Income: Determine your total monthly income by calculating the number of times you get paid monthly. Weekly paychecks are calculated at four times while biweekly paychecks are two times. An example would be if you received $800 every week, you would multiply $800 by four to get your monthly income. Or you receive $1,600 every two weeks, you would multiply $1,600 by two to get your monthly income.

3.      List Your Expenses: Make a list of your monthly expenses. These include rent/mortgage payments, utilities, entertainment, groceries, eating out, insurance, any type of loan payments, giving/tithing (not really an expense), vehicle maintenance, and subscriptions to apps and streaming Apps.

4.  Calculating Annual Expenses: Annual expenses like car plates/titles can be calculated by the total amount divided by twelve. An example would be your car plates/title are paid $120 annually, so you would divide $120 by twelve to get $10 per month.

5.      Calculating Fixed Monthly Expenses: Your fixed expenses will be the easiest to calculate as there are slight changes in the amount to pay. These include insurance payments, auto payments, student loans, and rent/mortgage payments are examples.

6.      Calculating Variable Monthly Expenses: I tell my clients to estimate high with utilities. You can plan for the highest utilities bill every three months, or for the entire year. That amount is what you should budget for. Groceries, entertainment, and eating out can be calculated by the total amount you spend monthly divided by the number of times you purchase those expenses.  

I will finish the step-by-step process in two weeks. Starting a budget can be the most daunting as obtaining and calculating the correct information can be time consuming, and the reason I started with these two as the first steps. I promise it will get easier once you get through these steps.