Are you already thinking about the 2014 budget?
Don’t wait until the New Year, start planning now so that you are ready next week with a plan. Others will wait and spend the entire year thinking about getting their finances together. Not us, we start mapping out the annual spending plan now.
Try a free online template or create your own spreadsheet in Excel. First list your income. If you have many sources, list each one separately. If the income varies, take an average of your earnings from last year (the year divided by 12) to come up with a reasonable monthly total.
Then multiply the monthly total by 12 and this is your annual income. This is on a separate line to be used later in our budget.
Next calculate your monthly fixed expenses. This would include anything that is due on a monthly basis from regular bills to recurring expenses that are charged to your credit or debit card. Total this column to come up with your monthly number. Then on the next line, multiply this total by 12 for your annual expenses.
Then total up the miscellaneous expenses that happen each year but not necessarily every month. Things like car repair, medical expenses, family vacations, meals & entertainment, emergency fund savings, etc. Take a look at your expenses for the last 2 years to come up with your categories and annual expenses. In this section, we have some control of what is spent. If we don’t spend the money in a category, we can keep it in savings ~ so be watchful of this section and see how much extra you can save each year.
Once the annual numbers have been calculated, divide this by 12 to come up with a general monthly number for easier tracking. Setting this money aside each month will take the stress out of emergencies and not drain your bank account in its urgency.
The next part of the budget is to calculate any debt that you want or need to pay off like credit cards, loans, etc. We will set this in motion when we have our annual totals in order.
Now we are ready to total up our year and see where we are. Start with your annual income and subtract your annual fixed expenses then subtract your miscellaneous annual expenses. This is your annual savings or loss to pay off the debts/credit cards listed. Divide this number by 12 for your monthly payment amount.
If this number is negative, it is time to take a hard look at your Miscellaneous expenses and see if you can narrow these a little to get closer to a positive number. You might even need to increase your income if reductions aren’t enough. The bottom line is that we need money to pay off any outstanding debts and to have a cushion for the just in case. Just in case car repair costs more than expected. Just in case we have a serious unplanned medical expense above our projection.
The next step is to track the money on a monthly basis. You can do it weekly or monthly but by reviewing your numbers, you are always in control of your money and your money won’t rule your life!
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Print a copy of the 2014 projections, keep it with you and go over it often. Because it is with you, fine tuning is happening all the time so less money and time are wasted.
The final step would be to snowball your debt to zero and have more money in your savings. I just read the book Pocket Your Dollars by Carrie Rocha and she and her husband used a similar budgeting plan to get out of debt and they have stayed out of debt!
To snowball your debt, arrange them in balance order listing the lowest balance first. Make your monthly payments on everything but apply extra money to the lowest debt until it is at zero. Then take this money along with any extra money and start applying it to your next debt until it is zero. Repeat until your debt payments are all zero! Now this money can be aggressively put towards your emergency fund or the purchase of a house or retirement investments. The less you owe and the more you save, the more options you have! Life gets really fun at this point.