Last week we began our discussion of creating your own budget in five simple steps and explored fixed and variable expenses. This week we’ll walk through step 2, Income.
Note: This is the second post in a five-part series. If you missed Part 1, click here and review that step before moving on to this one. Next week we’ll discuss Step 3, balance your checking and savings accounts.
Okay, last week you wrote down all of your expenses on a sheet of paper. Did you remember to discuss those expenses with your spouse or trusted friend or family member? I also challenged you to keep track of your variable expenses for a week or two. Look over that list and calculate the totals in each category found on your expenses sheet. Do any of the amounts surprise you? Did you notice which times of the day you are more likely to spend money? Keep those things in mind as you continue to track your expenses for the rest of the month.
Let’s review 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!).
Alright, gather your paper from last week and let’s move on to Step 2, write down your income.
Think about all your sources of income. Are you employed? Do you have more than one employer? What about interest income or dividends? Do you get alimony or child support? Any side jobs that provide a few extra dollars here and there? Are you self employed? Are you expecting a tax refund? Other sources of income include commissions, bonuses, rental income, SSI and SSDI, pensions, annuities, TANF, SNAP, and unemployment. Don’t leave anything out, especially if you are in debt or you seem to have “more month than money”.
Grab your pay stubs and financial statements from last month. If you are self employed, feel free to contact me or set up an appointment to meet with me and we’ll look at your income together. Focus on the net income (the spending money you have after taxes and deductions) on your pay stubs. Write those amounts down below your expenses on your sheet of paper. On your financial statements (such as your checking account) look for any deposits from the past month. These would include paychecks that are automatically deposited (and may also include alimony and child support payments), deposits you made with cash or check (perhaps from a side job?), and any interest paid to you from your bank. Write these amounts down as well (but don’t repeat anything, since you already wrote down your paychecks).
What do you see? Did you know that you had that much (or that little) coming in every month? Well don’t worry, once you have a handle on budgeting you won’t be surprised any more. And that’s a great feeling!
If you look back at Step 1, you may already notice that you have more money coming in than going out, or that you have more money going out that coming in. Before moving on to Step 3, brainstorm ways you can close the gap. Do you have money left over from last paycheck? Think about increasing your savings amount or your contributions to your retirement account(s) or college savings funds. Do you run out of money several days before you get paid? Explore ways you can increase your income or decrease your expenses.
Alright, so you’ve got income coming in and expenses going out. Before you develop your budget, you need to know how much you are starting with. In Step 3 we’ll take a look at what you have on hand right now that you can work with to get your finances back on track.
What do you think so far? Do you have any questions? Feel free to drop a comment below, email me, or set up a time to meet with me.