It is intimidating to think of money management, so unfortunately most people don’t until they are seriously in debt. There is also the sneaky way that money tends to disappear when people use debit and credit cards for everything. It is common that most people find their paychecks gone before they know it.
Managing a budget is really quite simple once you know how, and with a little calculation and organization, you can be on your way to paying off a debt, or even saving money for a holiday or other large expense. All it takes is 30 minutes, a piece of paper, pencil, and calculator if your math skills are not good.
First calculate your monthly income. This is all the money coming in to your account after taxes. Whether you receive checks from your employer or direct deposit doesn’t matter; your total income is all the money you see in a month. Write this total down, or an average of this total if your income varies.
Next, determine your fixed expenses. These are things that are non-negotiable, such as rent or mortgage payments, auto payments, insurance, and household bills. Add the total of all these expenses and subtract it from your income. This amount is what you have left for your variable expenses.
It is a good idea to keep a running total that is a few hundred more than your total fixed expenses in your main checking account, and have your bills come out automatically. This leaves room for some fluctuation, and you will always have enough for these bills. Next, add your total credit card payments to your running total for fixed expenses, because this is where the payments will come from, even though they are a variable expense.
Once you have your monthly variable expense allowance (total income minus fixed expense amount), divide it by four. This is what you will have for these expenses each week, and you can divide it as needed. Your variable expenses are things like groceries, gas or public transit, take-out meals, coffee, or any other regular expense that can be altered.
There are ways to save money on all of your variable expenses, so if this is your goal then research money saving techniques. To incorporate these expenses into your budget, calculate the average amount you spend on each category in a week. This is your running money that you should take from the bank once a week and keep at home in a safe spot such as designated containers for each debt. When you need grocery money, take it from the grocery spot. When the grocery money is gone for the week, eat what you have at home and wait until next week to buy more.
Credit card payments are included in variable expenses, because you have the choice to pay the minimum balance or more. If your goal is to reduce credit card debt, then see what other variable expenses can be reduced so you can increase your payments. For instance, if you can stop buying takeout for lunch twice a week and take leftovers to work instead, you have approximately $20 per week extra, or $80 per month, that you can use for reducing your debt. The difference between credit card debt and your other variable expenses is that the money used to pay it should be left in your checking account. This way it is there when the payment comes out.
Hopefully at the end of all these calculations, there will still be an amount left over that you can put in a savings account, or use for a big purchase that you have planned for. Sometimes you will have to reduce your debt before you see any leftover money for savings, but with this system you will see that relatively quickly.
This system sounds complicated but it is really very simple. The key to success is planning and organization. Pick a day of the week to go to the bank, or a day every two weeks if you prefer. This is when you can get your account statements to ensure your bills are what you expected, and withdraw- cash for your variable expenses.
Have a designated safe spot in your home to keep your money, and sort it the same day you do your banking. When you go out, take only the money that you will need, and leave your debit and credit cards at home to avoid any impulse buys. After a month or two, this will become natural and you will be an expert at sticking to your household budget.