Wednesday, May 27, 2015
Budgeting 101: Getting Started
Budget....the dreaded word. Budgeting can seem SO overwhelming. It creates tension and stress for many, but you know what creates more tension and stress? Too much month and not enough money. Budgeting can free you from quite a bit of stress once you get the hang of it. Getting started is the hardest part.
How do you get started?
Let's start by assuming you aren't paying your bills or monthly expenses on credit cards. The only reason you should be doing this is if you are very disciplined with your money and pay the balance off at the end of every month. If this isn't you, you should not be using a credit card.
Grab your bank statements from the last six months. If you don't have them you can usually print them off online or call your bank for copies.
Side Note: If you don't have online access to your banking information you need to get it, like yesterday. There is so much fraudulent activity going on today, and if you aren't checking your bank account online daily you are putting your money at risk.
Calculate your monthly income per month by adding together all of your deposits. Leave out any special deposits that are a one-time thing. For example, if you got a check last month for $1,000 because you over-payed your escrow on your mortgage you wouldn't want to include that in your calculation because you won't be getting that $1,000 every month and your budget would be overstated if you used it in your calculation.
After you have calculated all of your deposits (income) for each of those six months add them together and divide by six. This will give you an average monthly income. If you would like to be more precise you can use a year instead of six months, this would require you to have your past years bank statements and you would divide by twelve instead of six.
Now you want to determine your expenses, this is a little more complicated. To get a ballpark figure just add all of your expense transactions (debits) on the bank statement together on a month-to-month basis and get totals per month. We will be breaking these expenses down in to categories later.
My hope is that if you look at your calculations at this point you will see that your monthly income is exceeding your monthly expenses. You should at the least be breaking even. If you aren't you really need to get to work on your budget, luckily I'm going to give you a step-by-step guide on how to do just that.
I know we are all at different points in our financial journey. If you have more expenses than you have income it's quite possible you are living above your means. Daddy D and I focus the management of our financials around living below our means, always. Even if this means not getting something we really want.
There is seriously SO much I want to touch on regarding budgeting and financial planning. This series may seem a little scattered at first, but I'm hoping it all comes together for you in the end. Gather up your bank statements and get your totals because we will be budgeting from these amounts next!
See Part 2 here: Budgeting 101: My Secret Weapon
Much Love, Misti