Hooray, September’s payment for August’s posts came through from Medium! I made 12.60 USD which when translated to CAD means just over $15. Enough to take my beautiful wife out for a nice drink, or appetizer. Guess I’m not going to be living on this writing income anytime soon hey? But that leads me into the next topic, which is setting up idiot proof budgeting for beginners. See, I do numbers for a living, usually money numbers. As an accountant, I am often questioned when people are forming their budgets, then again when they’re trying to assess their performance based on budgets.
Can I let you in on a pair of secrets? Two points. One, at best a budget is a good guess supported by subsequent events. Two, at worst, it’s a bad guess refuted by subsequent events. Personal budgets are slightly different, but not enough different to make this irrelevant.
So, knowing that this is a guess, pressure is off right? Probably not. If you’re at the point where NEED a budget to see what’s happening, then there’re likely pressures I don’t know about aren’t there? Let me know in the comments if you’d like.
Where to start? What you did or what you want?
First big question, do you want to budget based on what you have coming in and what you have spent in the past (tracking to keep on the right path?), or do you want to budget based on a change of tactics, what you want to be spending (making plans, saving and moving forward)?
Examples of both abound, but the shortest versions are these:
1) you only get two paychecks in a month for a total of $2,000, and you need to keep your spending to that point.
2) you’re hugely in debt, barely making ends each month, still only have $2,000 and need to find a way to climb out of that hole, so spending habits need to change.
Surviving the status quo?
Keeping on track? You’ve chosen your target, now how to make a budget!
Pay close attention, this get’s complicated. Really, honestly, complicated. OK, not really. How much do you make in a week, bi-weekly, or salary? Can’t find that number, go look in one of two places; your bank account or your pay stub. If you don’t have a pay stub, then the bank becomes important, as do some other things like bookkeeping or personal finance tracking systems.
Did you find the number, and now know what you’re worth (net take home and you can spend it value)? Good, put that at the top of a page or a spreadsheet (I’ve a quick excel file I use for simple budgets I’ll see if I can share it somewhere at some point, as a PDF and an Excel Spreadsheet, hit me up if you need it NOW and I’ll figure out a way to get it to you)
Second, find everything you spent for the last month (receipts are the HARD way to do this). I would suggest printing out your credit card statements, bank statements and the like. Now, add those things up in categories. Make your categories make sense. Usually I leave each of the major utilities as individual line items (Telephone, cable, internet, gas, electricity), then accumulate the rest of the items into the usual “food” “Vehicle expenses” “Entertainment” “Meals out” “Kids school” type categories. Again, hit me up, or email me at Dukeofchaos [dot] castlechaos [at] gmail.com and I’ll get the basic template to you somehow.
Once this is done, get to work living your life. Come back and see me (or at least your budget) at the end of the month, total up what you did spend and compare, how well did you do?
Changing the Status Quo?
Need a new car? Looking to move into a real house (out of your parent’s basement or friends apartment)? Whatever the goal, changing habits applies to finances just as it does to other aspects of your life. In this case, as above, find all your records, figure out what you make in a period that you can spend and put that at the top of the page.
Now, instead of just determining what you are spending, you need to get creative, where can you cut some current expenses, (or grow some current income streams), and change the bottom line, make room for that extra bit to go to where you need it to go (pay down debt, savings, investments, etc). This is a little trickier and usually takes more to make it happen. Mindfully living and spending, don’t waste money, make sure you’re on track throughout the month. There are some tricks to this, some skills to learn, and some serious budgeting and tracking skills and software that will help, but those are another post entirely, and one I’m not yet finished with that post. I’ll try to remember to link to it when it’s done.
Without getting to redundant, once the budget is set, you get to track things, and then check in at the end of the month, see how you did, and plan for next month.
Budgets are living documents, not static items!
The biggest problem, by far, once your budget is established, is that many people treat a budget as a static item. Unless you’re a major corporation, with tens or hundreds or more stakeholders, budgets are living items, subject to changing and revisions as the actual numbers bear out over time. Let’s pick a period, say monthly. You get paid bi weekly, so, on the month that you chose to base your budget on, you totaled up your paychecks, and had three in that month. Usually bi-weekly paychecks only come twice a month, except for two months out of the year. So your budget that was set with three cheques, next month’s will be wrong. Thus, you need to revise the budget and cut it back to two paychecks worth of income, likely necessitating a cutback on expenses as well. At the end of the day, the budget was only a guess, and if you guessed well, or guessed poorly, you’re still only dealing with estimates. Take the notes, make the changes, revise your budget and kick it in gear, tackle next month with better information, a clearer re-dedicated vision.
Above all, don’t forget to budget for some play. After all, life’s not worth living without being able to have some fun along the way. Cheers. I’ve gotta go put in a fence. I’ll be back a little later with an article about self-editing, but that’s kinda dry and I’m afraid of writing it, so I have to go work up the nerve to do so.