Last week, we covered the balance sheet – the net of your assets and liabilities. The next step of knowing where you are befoe you can fulfill a New Year’s Resolution is to know what your spending looks like.
In fact, budget is not an accurate word, at least not yet. More importantly, is knowing the balance of your income and expenses.
Part of this is easy. What is the total of all money coming into your household? If you get paid weekly, multiply your take home pay by 4.33 because the average month has four and a third weeks in it. (30 days in a month ÷ 7 days in a week = 4.33 weeks per month) If you get paid every other week, then multiply the take home pay by 2.14. If you get paid ont he first and fifteemth of the month, then it is easy – add both checks together. At this point, we are only looking at the net pay; we’ll look at gross pay and payroll deductions later. Add all income from all sources, including things like social security and disability pay or alimony. This is the total you have to spend.
Next is the more difficult part. Write down every expense that you have to pay every month to live. That means food, lights, heat, mortgage or rent, insurance, gasoline, etc. Do not include your debts at this point. You can include your mortgage or car payment because those are necessary expenses. We’ll deal with their impact on your budget later. Some things are difficult to determine becasue the expenses do not occur every month. Insurance is not necessarily paid every month. You don;t buy clothing every month and hopefully you do not need to go to the doctor every month. In those cases, try to add up what you spend in a typical year and then divide by 12 and put that result into the expenses.
Now for the big finish. Subtract your expenses from your income. Ta Daa! Is the result surprising? Coming up next: How to form a real budget. And while you are at it, don’t forget to listen to the Money Go Roundtable podcast.