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Budgeting, Saving, and Waiting

I've been talking about budgeting, saving, and waiting to buy something you really love. What does that really mean?

Everyone has a budget , from the second grader with a $5 allowance to the successful 40-something businessperson to the 80-year-old retiree. People who have a small income and move into their own living space usually look at their budget, and that's a great start.Budgeting is something everyone does, but making an effective budget can be difficult. It's very easy to overlook an expense, or see a large amount of unbudgeted money and simply spend it all.

There's some accounting and some math involved. But I promise, I put it in human words and made it as simple as it can be. You can do this math on any calculator, and it's only adding, subtracting, multiplying, and dividing. Don't be scared! You can do it! Sit down with a pen and paper, grab a cup of coffee, and pull up the calculator app on your phone.

Note: The numbers in this post are small. I'm using my 18-year-old self as an example, so earnings are low, but bills are also low. I think it's easier to follow with smaller numbers, but the concepts remain the same.

How Can I Make an Effective Budget?

1.Write down what you get each week (or paycheck). Many people will have receive exactly the same amount each week, but many others may work on commission, hourly, etc. The key to budgeting with a fluctuating paycheck amount is to watch what you're actually earning. For instance, say my paychecks for the past few weeks were $199, $236, $202, and $212. For my budget, I would write $204 as my weekly earnings. What I did: get rid of the highest number. Add the rest of the numbers, and divide by how many numbers there were. In this case, 199 + 202 + 212 = 613. 613 divided by 3 = 204.333. Let's round that down, and say $204. That's close enough to the lowest number, $199, that I'll be able to manage on a short week, but the rest of the time I'll have wiggle room. Always round down on your income and up on your expenses, especially if money is tight .

Make sure you look at what is actually going into your bank account , not calculating what you should be getting from wage x hours worked, or your salary. Since taxes and Social Security (in the US, anyway) are taken out automatically, it's very likely that a good deal of that money is being withheld.

2. Figure out what you generally make in a month. So according to the last step, I earn $204 a week. Most bills are monthly, though, so let's figure out what I earn per month. A week is 7 days. A month is usually 30 days (sometimes 31, but I'm staying conservative and giving myself just a little more wiggle room). 30 divided by 7 = 4.287. We'll round that to 4.3 weeks per month. If I earn $204 per week, and there's 4.3 weeks per month, then 204 x 4.3 = 877.2. I average out to $877 per month. In some cases, you may be paid biweekly. In that case, you could take the paycheck amount x 4.3 x 0.5.

3. Subtract your rent/mortgage. Rent/mortgage should only account for 1/3 of what you make per month; if you find yourself paying much more than that, it could be time to look for a different place. So in this situation,we'll say that my rent is $350. 877 - 350 = 527.

4. Make a list of monthly bills. These can be electricity, gas (heat), water, cable, Internet, phones, insurance, credit card bills, loans, car payments, etc. We'll say that my monthly bills come up to $175. 527 - 175 = 352.

5. Figure out how much you spend per month on consumables . Food, gas, cigarettes/alcohol, and prescriptions are the big ones, but don't forget toiletries, cleaning products, and paper products (paper towels, toilet paper, tissues). This one may be the most difficult to figure out, but looking at your receipts, or writing down what you spend where will give you a good idea. You can also use a budgeting app/site like Mint (it's completely free!) that you attach to your bank account to see where the money is going. If your budget is tight,absolutely start monitoring your consumables numbers and see where you can cut down. I'll spend $200 on consumables. 352 - 200 = 152.

6. What you have left is your disposable income! Spend it however you like. In this case, I'd have $152 left to do with as I please. I like to deposit 20% of that into my savings account for a rainy day (such as fixing my car or a visit to the emergency room or a gift I almost forgot to buy, whatever). This isn't absolutely necessary, but you'll be incredibly glad for it when you do need it. 152 x 0.2 = 30.4, but I'll round that up to $31 going into my savings account. I then have $121 left.

Posted in Newspaper Post Date 03/25/2016


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