Every single financially independent adult should have a budget, whether they’re making minimum wage or $200k per year. We’re introducing this concept early because a budget really is crucial for any kind of financial planning, and we believe understanding how to construct and follow one is essential to the debt elimination process.
First things first, we need to figure out how much you really make. Break down your monthly and yearly income using the worksheet below – remember to account for unpaid vacations, fluctuations in hours (if paid hourly), and taxes. It is always best to round down if you are unsure.
Please complete Worksheet: What is My Take-Home Income? before continuing.
Next, we need to find out your monthly and yearly expenses. Focus on recurring payments or fixed expenses that happen on a regular basis (like prescriptions or oil changes,) we’ll deal with all the little stuff later. Don’t let these totals overwhelm you, it can be daunting for anyone to see all of their expenses compiled in one succinct place. Just know that seeing the big picture will be extremely helpful in the near future. Unlike the income worksheet, here you’ll want to round up if unsure.
Please complete Worksheet: What are My Living Expenses? before continuing.
Alright, time to think back to elementary school math. Subtract the yearly total on the expenses worksheet from the yearly total on the take-home income spreadsheet. Are we still in the positive? Or have we already drained your income? Don’t stress, even if things are already looking tight – that’s why you’re here, isn’t it? Take a deep breath, we’ll help.
Now, this part isn’t as cut-and-dry at this step in the budget-making process. You know all of those little expenses we told you to forget about on the last worksheet? It’s time to try and put those in writing. Ideally, once you’ve built and followed your new budget for a month or two, you’ll know (almost) exactly how much you spend on the little things, but for now just try your best to guesstimate. Try to be honest with yourself here, we know it’s tempting to lowball.
Please complete Worksheet: What are My Day-to-Day Expenses? before continuing.
You probably know what’s coming next: subtract this yearly estimate of day-to-day spending from the total we got earlier by subtracting monthly expenses from your take-home income. How are things looking now? This should give you a rough idea of what your financial situation is without factoring in any existing debt. Again, and we can’t say this enough, don’t be overwhelmed by these numbers. You’re several steps ahead of most of the population just by sitting down and figuring out what your situation actually looks like. From here we can make it better.
Armed with the information we’ve laid out above, we suggest that you get started with one of the many budgeting softwares currently on the market. You may choose to go the traditional pen-and-paper route, but if you’re feeling overwhelmed it might be helpful to have a guiding hand by your side as you navigate this new budget.