Making the most out of your monthly income

One of the biggest challenges that I had when I first entered college was the task of learning how to budget. I was (semi) on my own and had to learn to manage the money that my parents were sending me and from the part time job I held while in school. Now, as a parent, I try and help my children think about their own actions and the consequences of their financial decisions and how to make good choices as they begin their journey towards adulthood.

The most challenging part of my budget development that I found was separating my fun money from my bill money and learning how to manage them both and meet my obligations every month. Those college years are long gone, and since I’ve become an adult on my own, and with a family, I’ve learned a great deal on learning how to budget my money wisely.

The main challenge that most people face in budgeting is developing a routine and sticking to it. There will always be emergencies, inconveniences and things that come up that we just don’t expect. But, learning how to maneuver around those life challenges and be financially sound will reap huge rewards. Here are a few tips that can help anyone who is learning how to budget and gain control over their finances:
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• Record your total income for the month. Include everything that you receive including your main salary, money from a part-time job, child support checks, alimony, interest on savings, etc. Make a complete list of all income and start your budget with this number. This will be the total amount that you have to work with and manage each month.
• List your expenses and all outgoing monies in their entirety. This will be for all types of expenses including your gym membership, your Starbucks habit and money that you put aside for incidentals.
• Now, adjust your list according to the things that are necessary and the things that are critical. Divide the list into two sections and label them “Need” and “Want.” Yes, I agree with you that the grande Macchiato latte with a double espresso shot is a “need”, but for budgetary purposes, let’s focus on being responsible and financially sound. We’ll see if we can work that into the budget somehow!

Everyone’s obligations are different, therefore everyone’s lists will be different and have different numbers. However, there are some things that will be consistent for most everyone so let’s take a look at those things.

Budget Items

Rent/Mortgage. If you live somewhere, you have to pay for it. This item should be  at the beginning of your budget.

Charitable Donations/Savings. If you are religious (and even if you aren’t) there should be a line item for giving and/or saving. Reserve anywhere from 10-15% for this expense. Regardless of what your income is, saving a small percentage of it can help tremendously in financial stability.

Automobile Expenses. This includes gas, oil changes, routine repairs, etc. It is far better to have money budgeted and planned for your car’s needs than it is to be surprised when it happens. Again, this doesn’t have to be a large amount, but anything towards that expense will help a great deal.

Food. This would be for all food, including groceries, eating out, special dinners, etc. On a budget, it is wise to limit the amount of times you eat out because this can be quite expensive. Buy your groceries on a weekly basis and only spend 1/4 of the amount that you have budgeted, no more, no less. Also, plan your weekly grocery shopping excursions and know exactly what you’re going to buy and how much you’re going to spend. Stick to the list and don’t get distracted by “sale” items for things that you don’t use regularly anyway.

Clothing. A definite expense, especially if you go to work everyday and you’re trying to clothe children. Set a reasonable amount for clothing within your budget that will allow you to buy one to three items every month for each person in your household. This will keep you from having to go on shopping sprees and buy a lot of clothes all at once. Shopping frequently and getting items on sale will keep your family’s closets full of things to wear at all times.

Utilities. Budget the average amount for this monthly recurring expenses. If available, take the last six months of activity from your utility bills, average the amount and record this amount as your monthly budget to reserve for this expense.

Credit Cards/Other Bills. Part of your financial goal will be to eliminate this category, but the obligation to it must be met first. Budget your finances to pay more than the minimum amount required for this expense. This reduces your interest rate on the outstanding balance and you will begin to see that number drop faster.

Other/Miscellaneous. Yes, this is where we can hopefully factor in that morning perk. But, in order to satisfy the true requirements of learning how to budget, we must look at eliminating those unnecessary expenses and focus on financial obligations. In lieu of that weekly morning habit, invest in a quality coffee maker or espresso machine and brew your own joy at home. You will save a lot of money and still get to enjoy your Macchiato, or mocha latte, or whatever your fix may be. 

Smart, productive budgeting is not very easy and takes time, diligence and patience in order to see it work well. Getting started is the first step of many in reducing your debt load, reducing stress, having more money available at the end of the month and eliminating bills.

Be realistic but responsible in developing a budget that’s going to work with your family’s lifestyle, yet remains focused on the family’s financial goals. After some time, you will begin to see all of your hard work and perseverance pay off with a budget that makes your life more enjoyable and manageable.