Money rule #1: don’t spend more money than income you take in!
Spending more than you make is a sure fire way to get covered by debt and weighed down by more bills than you already have. Knowing this fact and living by this fact are two different things. It’s easy to say you know this rule to be true and totally another thing to be disciplined enough to make the necessary choices to live within your means. But there is hope – even if you aren’t currently living within your income limit you CAN make changes to ensure that you are moving forward. How you ask? Simple, make a budget.
Now, when you stop laughing and rolling your eyes at me, hear me out. It really doesn’t have to be so complicated! Sure it takes hard work and tough choices, but at the end of the day not having the stress of wondering if your bank account will have money to buy groceries before payday will be worth all the effort. I promise! Don’t allow the process to overwhelm you – take it step by step.
Figuring out your income is half of the two-part first step to budget creation. I detail, in depth, the process of tracking your spending on this post. Bop over there at some point and get started. It takes time to gather your expense numbers, but again I promise you won’t regret it! The flip side of starting the budget process is figuring out how much money your family takes in, or income.
There are two factors to consider when you determine your income:
How often you get paid and how much you get paid.
First: How often you get paid…
- Weekly checks – you need to take your check amount and times it by 4 to figure out what you make each month.
- Every other week checks – assume you get 2 checks a month so you times your check by two in order to determine your monthly income.
- Now there will be some months that you get an “extra check” – happens twice a year with my husband’s every other week check. Because this isn’t a normal occurrence I don’t figure that check total into my budget. I take out some of the money to cover essentials like groceries and gas, but assume that any additional money can be put into the savings or used to pay down extra debt!
Second: How much you get paid…
If you are on a salary, you should get the same amount in your paycheck every time you are paid, making it very simple to figure out how much your monthly income is. However, most of us don’t have a set income or pay check every time. Some factors to keep in mind when you aren’t working from a salary based check:
- Find an average – most people typically work about the same amount of hours each week so have a general idea of their typical weekly income. Start by looking at your last few checks to see if they are similar in size. Typically my husband’s checks are within $100 of each other.
- Aim low – once you have determined a typical average, aim for the low end of that number for your “typical income”. This way you aren’t accidentally spending more than you make on a small check week and any ‘extra’ you have in your check can go directly into savings or debt reduction.
- Be flexible – if your job finds you working lots of overtime during certain parts of the year be prepared to adjust your budget accordingly, bumping up categories like savings or retirement perhaps. On the flip side if you know you get less hours in the summer be sure you are adjusting your budget down to ensure you aren’t overspending on things that aren’t a fixed expense every month.
- Find ALL your income – if you only work one job that’s easy, just one pay check to consider. However, many people these days are working a second job or embarking on direct sales or crafting to boost their income. In these situations make sure you focus on the ‘aim low’ factor when you add them to your overall income. In any kind of situation that isn’t ‘guaranteed money’ (like sales commission) it’s important to not over inflate how much you are really making. Be sure to take into consideration expenses, fees, etc. that will lower your actual income.
Once you have determined how much you make in a typical month this step is done. Really, that’s all there is to it! See, I told you it didn’t have to be so very complicated. Once you arm yourself with your average income and average expenses it’s time to get to the actual budget creation. I believe in you – you CAN do this. Stay tuned soon to get some help making your budget.