September 21, 2009

Composing a Budget
Many of my clients have informed me that they do not know how to establish a budget. In this article I will give you step by step instructions to improve your skills.

1.) Make 2 columns or use 2 separate pieces of paper. On one column or one sheet of paper, list every bill that you owe or pay. For example: rent or mortgage payments, electric, oil, gas, gasoline, taxes, groceries, credit cards, medical, etc.
2.) After listing all the amounts; Note that some of these payments are payable intermittently or annually.
3.) Break down the payments into increments that are applicable to your salary or income on the basis of how much you will owe on any payment period, e.g. determine whether the costs are due each week, once a month, once a year or occasionally.
4.) Determine the yearly amount of bills and then divide by the frequency of your income increment totals. Save the finances which you will have to pay later in the future which will reflect the amount you will owe divided by either the one week or bimonthly, or monthly income. For example, if you pay a house tax once a year of $5000. it would be divided by 52 weeks (if your receive a weekly salary) and the amount that you need to reserve each week would be $96.15.
For intermittent bills such as oil or gas - either figure totals from last years bills or estimate the percentage of increase for this year. Now create a total estimate that you can similarly divide by your income increments.
5.) You should have two figures. One will be an annual amount owed. The other will be the amount that you need to reserve for current and future bills each time you are paid so that the savings will cover the expenses when they are due.
6.) Subtract the current needs such as for: groceries, gasoline and put aside the rest for future payments. (If you are unable to prevent yourself from spending the excess that you will need when the payments are due for taxes, oil, etc. then create a separate bank account that will allow you to ignore, as if it does not exist, until it is needed to pay the upcoming expenses.) Remember that this is not excess money, but reserved money for when a balance is due you have enough to cover it.

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1.) Now on that other column or that other sheet of paper, list all your income from every source that you receive.
2.) Subtract your income from you bills. If the income is less than the owed amount, then you need to figure how you can make more money and spend less. (You can also use both lists to determine where frivolous debts have been made so that you can eliminate them.)
3.) For the purpose of this budget, let us proceed as if the amount you make will cover the owed amounts if you handle your finances properly.
4.) Next determine how often you are paid.

If once a week, then you must divide an annual amount due by 52 weeks of the year.
If you are paid bimonthly, divide by 26 weeks.
If you are paid on commission or any other type of income- figure the total sporadic amount determined by your last income tax statement. Then estimate how much you need to put away based on a weekly cost of living which includes all bills.

Good Luck with living within your means. Sacrificing now to make certain you have good credit will make your future secure.