Wednesday, July 28, 2010

Create a Budget: Steps 3 & 4

The first step to financial health is to create a budget. Here are some mini-bites to begin creating a budget that works and you can live with.

3. Find Out How Much Things Cost

Take your list and fill next to each item the exact cost of said thing.

At this point, you will find out that your expenses will fall into one of two categories, fixed and variable.

Fixed stay the same or about the same every month.
Rent $725
Car Payment $402
Internet $60.57

Variable, well, vary.

For variable expenses, you can do 1 of 2 things:
1) Write down what you spent for the last 3 months on these and find the average cost. (Add all three numbers together, and divide the total by three. That's your average.)

$540 + $713 + $560 = $1813

$1813 ÷ 3 = $604.33
The average cost is $604.

2) Make an educated guess.
Don't fret on this one because we will adjust these numbers over the next three months to find the magic number for you and your family.
As you fill in numbers, you will also come across items that aren't paid every month, like car registration or Christmas gifts. Take the total cost of your car registration, for example, divide by 12 (months), and write that number down next to "Car Registration." That's how much registration costs you per month. Keep the annual total next to it in parenthesis.

Car registration
$150 ÷ 12 = $12.50

You would write:
Car registration __$12.50__ ($150)

This step takes anywhere from 30-60 minutes. If you spend more than that on this step, choose OPTION 2! The budget is NOT supposed to be perfect. It is this misconception that leads people to get frustrated with budgeting.

4. Add It Up

~ Add up all the expenses to come up with an expense total for the month.
~ At the top of the page, write down the total of your monthly income(s).
~ Subtract the expense total from the income total.
~ What's the total? Is it a negative number or a positive number? What side of zero is it on?

Math only tells you where you are presently; it is not a measure of despair. So, even if your number is in the deep negative, don't worry. This is just a starting point, and it will help measure your progress.

At this point, some women freak out and use this number to "motivate" their spouse to change things or make more money. DO NOT TRY THIS AT HOME (or anywhere). Have you ever nagged your husband about something really important and he did nothing about The Important Thing? That's because nagging is the perfect pitch that signals a husband's brain to shut down.

So, take the number on your sheet and say aloud to yourself: "Huh. Good to know!" If you'd like, take the list and numbers you have so far to your husband and say, "This is what I found. I'm going to make some changes to our budget so we can obey the counsel to live within our means. Do you have any suggestions before I go into the other room and start working on this?"

Then, let him suggest only one or two things (do NOT argue about the ones you don't agree with), thank him WITH A SMILE for his input and go on to the next step.


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