So far we’ve covered Expenses and Income. This week we’ll look at balancing your accounts so you know where to start when developing your budget.
Note: This is the third post in a five-part series. If you need to, go back and read through Part 1: Expenses and Part 2: Income.
Last week you added your sources of income to your sheet of paper. Did you brainstorm ways to close the gap between your income and expenses? Work on following through with those ideas in the months ahead.
Here’s an overview of our steps to creating a budget:
- Write down your expenses.
- Write down your income.
- Balance your checking and savings accounts, including cash on hand.
- Determine your spending categories.
- Create a spending and savings plan (aka, a Budget!).
Let’s move on to Step 3, balance your checking and savings accounts, including cash on hand.
- In your online account or in the bank’s app, pull up the current balances of your checking and savings accounts, as well as any loans you may have. If you don’t do online banking, call your bank and ask them for this information. Write down your current balances on your sheet of paper.
- Next, subtract any pending amounts from your accounts. These will most likely be pending payments that have been approved for payment but haven’t actually been paid. Also, subtract any credit card balances you have. Don’t worry about minimum payments right now, just the total amounts. (Why credit card balances and not loan balances, you ask? Because credit cards need to be paid in full each and every month, whereas loans are meant to be paid over many months. You must develop the habit of paying credit cards every month if you are going to have them).
- Third, subtract any bills that need to be paid before you receive your next paycheck.
- Lastly, find all of the cash you have in your possession. Look in your purse or your wallet, the back pocket of your jeans, your coat pockets, and any hiding places you may have. Count how much you have and write that amount down as well.
Add together the adjusted balance of your bank accounts and the amount of cash you have. Is that a positive number or a negative number? This will be important to know when we move on to step 5.
By now you should have a good understanding of where your money is coming from and where it goes every month. Before you move on to creating your spending categories in Step 4, take some time to review everything you’ve done so far and discuss it with your spouse. What are your financial goals? Do they include creating an emergency fund? Paying off debt? Funding your kids’ college? Together, come up with a one month, one year, and five year plan that shows you meeting or being on track to meet those goals. For example, your immediate goal could be to have a few dollars left in your pocket when your next paycheck hits your bank account. You could plan on having credit card 1 paid off by the end of the year. And you might have a goal of purchasing a newer vehicle within the next five years. Keep these goals visible by tacking them to the refrigerator or next to your bathroom mirror.
What do you think so far? Do you have any questions for me? Feel free to leave a comment below, email me, or set up an appointment to meet with me. Have a great week!