Years ago, when I was looking for my very first apartment, it all seemed so overwhelming. How in the world was I supposed to know which apartments to look at? Sure, I wanted it to be in a nice area of town. And, yes, I wanted a place that would be close to my work. But how much could I afford? It really seemed like maybe this was some arbitrary number. Luckily, I figured how how to budget reasonably BEFORE I signed my first lease. And I never had to find out what it was like to be paying rent that was way over what my home budget would allow.
The first key to figuring out how to budget reasonably is to know EXACTLY how much money you will bring in each month.
I know that some people get paid bi-weekly or weekly – if this is you, do the appropriate multiplication and figure out what your monthly take home (after tax) amount is. That’s pretty simple!
What isn’t simple is when you might have flexible or changing work hours or perhaps you work for tips.
This was actually the situation I was in when I looked for my first place (I was working as a personal trainer and so my monthly income fluctuated depending on how many sessions and clients I had.) If this is your situation, what you will want to do is take a look at the last 6 – 12 months (the longer the better) of income and figure out what your monthly average is. (Add each month up to get a total and then divide that by the number of months.) Doing this will allow you to set correct expectations so you aren’t basing your home budget on really small or really large month that is not reflective of what you actually typically make.
Once you have your actual take home monthly income, you will need to know ALL of your expenses.
Some of your monthly expenses will be set – your car payment, your car insurance, your cell phone. While some of the expenses in your home budget will change from month to month – electric, food, gas. You need to be sure that you have all of your expenses taken into account. Don’t forget semi-regular expenses – car registration, medical costs (annual doctor visit or contacts). These semi-regular expenses are often overlooked when people are trying to figure out how to budget their income. If you leave them out, you will be taken by surprise when they hit and it can leave your home budget in a tailspin for those months.
For your expenses that change from month to month, you can get a good average by doing the same calculation that you did if you have a changing monthly income. Add up ALL the expenses in that category over the last several months and then divide by the number of months data you used. This will give you a good average amount to set for that expense.
When you are figuring out how to budget for your home budget, don’t forget to include to build in an amount for savings, emergencies and fun!
If you don’t take into account in your home budget that you will have emergencies – think new tires, health issue – you will not have anything set aside when these things happen. And believe me, they DO happen! So, make sure that you add to your expenses list an amount for emergencies. Additionally, make sure that you put something into savings and also into a FUN account. The amount that you can put aside for each of these items will depend on the flexibility in your home budget. However, even if the amounts are small (even $10 a month each!) don’t forget to include them and diligently “pay” them each month. If you don’t account for savings and also to do things you enjoy then it doesn’t really matter how much time you have spent figuring out how to budget — your resulting budget will not be reasonable and is not likely to succeed.
Failing to get all of your expenses properly accounted for WILL result in a failed budget!
Now that you have all of your income and expenses figured out, you can work on how to budget to achieve your goals reasonably.
Take a look at your home budget numbers and see how much you have left over when you subtract expenses from income. (If expenses outdo income, then you need to really take a look at living a bit more frugally!)
If you need a little help keeping track of all of these budgeting numbers and aren’t sure how to get things structured. I use these budget tracking worksheets for my household and they ensure that we stay on track EVERY MONTH to hit our budget goals.
If you are looking to cut down on some of your expenses, one easy way to cut down on expenses is to tighten up your food budget. It can be overwhelming to think it out for the first time though. I HIGHLY recommend Money Saving Worksheets” a VERY affordable worksheet package from A Modern Homestead. They will help you get your food budget and meal planning totally under control. It makes it easy and not so time consuming to do.
How to budget reasonably doesn’t have to be scary, just be sure to know all of the pieces that go into your budget so that you can set yourself up for success!
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