Creating a Budget 101: Write It Down

When I talk to people seeking Financial Coaching or requesting funds for assistance, I first ask them, “Do you have a budget?”.  A majority of the time, the answer is “No”.  We all have heard that we need a budget, but some may ask, “What goes into a budget?”.  Let’s spend some time and start what goes into a budget.  Here are some items I would suggest to start:

Income

First place to start: Your Income.  How should you plan to pay your bills if you do not have an income?  Income is any money you bring in.  Any money you consistently bring in needs to be added to your income. Types of income include:

a.     Paycheck from a job

b.     Side hustle income from a service or selling products

c.     Social Security & pension payment

d.     Retirement

Expenses 

Next, start listing out all your expenses.  You need to know what you are bringing and what is being taken out.  Here are some expense items to consider:

1. Essentials.  Start with the most critical expenses. 

   1. Mortgage/Rent

   2. Utilities (includes cell phone and internet)

   3. Groceries

   4. Auto (Fuel and Insurance). If there is a car payment, list it under “Debt”

2. Consumer Debt.  Consumer debt is anything outside your home mortgage payment. If you owe the money, it is debt.  Period.  I will cover debt payoff strategies in a different post.  Possible items would include:

   1. Car Payment

   2. Credit Cards

   3. Student Loans

   4. Personal Loans

   5. Collections

   6. Cell Phone (yes, the sneaky amount behind those monthly deals)

3. Giving, Tithe, and Charities. Add it to your budget if you give to a place of worship, non-profit, or charity.

4. Personal Expenses. We all have expenses that we need or want to have in our lives. These expenses could include:

   1. Personal (Child or Daycare, Clothing, & Entertainment)

   2. Eating out and coffee. This is not an essential item but more for convenience or entertainment.

   3. Subscriptions & Memberships

   4. Extra Insurance and Health Programs

   5. Vacation and Trips

   6. Investments Contributions

Fixed vs Variable Expenses

There are two types of expenses when.  Fixed expense is the consistent monthly amount of membership fees and debt payments.  It is the same amount month to month. 

A variable expense changes monthly based on usage, such as fuel, utilities, and groceries.  Add the total number of expenses in that category to determine your monthly, variable expense amount.  For example, fuel for your car.  Add up all the times you filled up at the gas station for the past three months.  Then, divide the total sum amount by 3.  This will give you your average monthly variable expense amount. 

Income <=> Expenses

Total up your Income first, then add up all your monthly expenses. This will show you if you have extra money at the end of the month or if you need to make some cuts. 

We need to list our income and expenses to know where our money is coming from and going. Most people do not know what is flowing in and out. Take control of your personal finances and take the step towards freedom. You control your money; do not let your money control you. So, are you ready to Step Up & Start Now?

In future posts, I will share on debt payoff strategies, envelopes & freedom funds, and other tips and tricks.

If you would like your budget form, email me at mcfaddenfc@gmail.com.  I will send you a template I use with my clients. Thanks everyone and rock on to the fullest~ Ryan

Creating a budget takes time and effort. One does not need fancy software to start a budget. Start with pen and paper.