The main task in drawing up a personal budget is not just to reduce the debt and credit, but to correctly distribute spending so that in the last week before the paycheck you don’t have to borrow or live hungrily.
How to budget for the month
As a rule, the main part of the salary is given not on the first day of the month, but on the 5th, 10th, or 15th of the month. Therefore, it would be more convenient to plan a budget, not for the calendar month, but the period from paycheck to paycheck, for example from March 10 to April 9. The most important thing is to understand your stable income, and what is included on your paystub?
First, you need to record all of your financial income, so you understand how much money you have. You should consider all sources of income: salary, bonuses, part-time jobs, money from renting an apartment, and so on. If your income is unstable, it makes sense to create a budget when you know exactly how much money you have at your disposal.
The first to be written down should be the expenditures, without which you can not do without. This list will look something like this:
- Groceries (including lunches at work, if you eat in the dining room).
- Utility bills.
- Cell phone service.
- Household chemicals.
Naturally, the list of mandatory payments will be different for each person and each family. The toll may be replaced by the cost of gasoline. People with chronic illnesses will take into account spending on medicines. The same list will include payments on a loan, payment for kindergarten, and so on.
The money remaining at the end of the financial period can be spent or set aside. The first way is pleasant, the second – rational.
How to plan a budget for the year
An annual financial plan will need regular adjustments to both expenses and income, so all the columns in it need to be created in duplicate: the forecast and the actual figure.
If you have a fixed income
If you have a fixed income, you simply put your salary and other steady income into the income section. The only thing that interrupts the flow of things is vacation pay. Usually, you’ll be given money for the days you’ll be resting before vacation, but then you’ll be short some amount in your paycheck. But in general, at the forecast stage, especially if you are budgeting for the first time, it will be enough to use only your salary for all months.
If you have an irregular income
When income is irregular, there are three ways to forecast income:
- You are confident that you will receive enough money each month to live on, even though you do not know the exact amount.
Calculate your average income and use it to calculate. If you earn more than the projected amount in any given month, move the excess to the piggy bank. You’ll get into it if you earn less than the average.
- You don’t have a steady income, and you’re not sure what will.
It’s better to take a minimum income as the basis for your calculations. In this case, budgeting will be a challenge with an asterisk, but there will be no financial surprises.
Part of your income is stable, but the exact amount of your income is hard to predict.
For example, you receive a fixed salary, and the existence of a bonus depends on many factors. Then it’s worth planning your budget so that your stable earnings cover all your primary needs, and you’ll spend on the rest according to the situation.
Don’t forget to take into account the income you receive irregularly: a quarterly bonus (once every three months), a tax deduction refund (once a year), and so on.
When planning expenses, write down the columns of months of mandatory spending: food, utilities, travel, cell phones, household chemicals, and so on. Keep in mind that utility bills are higher in winter because of heating, and you’ll spend more on cell phone service in May, for example, because you’re going on vacation. These changes need to be built into the budget.
There are two ways to plan for large expenses:
- Draw the entire amount from your monthly budget.
- Split it up over several months.
Each month, once you have income from all sources, you’ll have to adjust your budget to determine how much you have on hand. As the information becomes available, it’s also worth considering changes in expenses.
It’s worth remembering that even if you’ve been extremely disciplined in sticking to a financial plan that takes into account all the little details, circumstances can make major adjustments to your budget. A job loss, a raise or raise in salary, the birth of a child – all of these things will require major changes in your financial strategy. But even a bad budget is better than no budget at all.