Friday, June 27, 2014

Budgeting, the Newkirk way: Step 3

Today, we're going to actually get a preliminary budget down on paper.

The first step is to choose a form to plug things into.

This can be a paper/pencil format, an online budget-building tool, an excel spreadsheet, an app, or a template on Microsoft Word or Pages for Mac.  

Surprisingly, although I prefer technology for everything else, for this step I use paper and pencil.  

Let me emphasize the PENCIL part of that.  It bothers me to scratch anything out in pen, so I use pencil with a really good eraser.  Otherwise, I have to start all over if I mess up or if something changes.  

Start by filling in your estimated income.  I always shoot LOW on Matthew's checks because he is paid hourly, not salary.  I use a lower number than he usually gets paid and sometimes we're pleasantly surprised by a bigger check.

Next, start subtracting out your monthly fixed payments.  This would be any items from the debt snowball you worked on in step 2.  It would also be any fixed utility bills or other payments (charities, insurance, etc.).  You should have these listed on your notebook paper from the other day.

Finally, subtract an estimated amount for each of your other necessary expenses.  This would be fuel, food, household items, pet items, etc.

When we were first starting to budget, I left off any entertainment items, eating out, and other unnecessary purchases.  We lived VERY frugally for several months, until we got our credit cards paid off.  

After that, as I mentioned before, I became a little lazy and unfortunately, started spending more on entertainment, eating out, and other unnecessary items.

I'm revisiting our budget because of the dollars we are WASTING every month on these items.

In our current budget, we try to plan for eating out two times a month.  We take the girls out once to a nicer dinner and then Matthew and I try to go out on a date every month.  A lot of times, we use gift cards for these nights, but it's good to plan for no gift cards and if we have extra money leftover...that's even better!

In our monthly budget, Matthew gets $100 cash a month.  That way, it's coming out early on and not when I see online that he spent $14.00 a day at Casey's on breakfast.  :) 

When the $100 is gone, it's gone.

Okay...now that you've got your income listed and you've subtracted out all of your estimated expenses, evaluate your spending.

There is a chance, that since you are just starting this budget, you might be at a negative number by now.  Well...that simply can't happen.  You can't build a budget and end up in the red.  So this is where it's time to start cutting.

Of course, the best place to start cutting would be with those estimated expenses you added at the end.  Fuel might be hard to cut down on with the prices going up, but your grocery bill is a great place to start!  I'll be posting about how we plan our menus and do our grocery shopping in another post in a few days!

Your budget should equal $0 by the time you're finished.  After you have cut where you can cut, you take whatever you have leftover each month and plug it into your debt snowball.  By adding extra dollars on top of your snowball, you will start paying off those debts in no time!

When we got to just a few low-interest items on our snowball, instead of putting our extra dollars on top of the snowball, we started putting them into a separate checking account to use for things like medical copays, gifts throughout the year, and our year-end taxes.  

Our main goal is to not touch either savings account through the year, unless it is absolutely necessary.   There have been a few times that it has been necessary, and it is a great feeling to know we've got a little saved back to take care of that.

Alright...so work on that step 3 and I'll be back with another post SOON!

Thanks again for listening!
Hannah


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