ISO Best Budgeting Plan Possible!
Hi All! :D
I am bad with money......compulsive spender with no real concept of budgeting. I know there are certain percentages of your earnings that you should be putting away for certain things, but I don't know what they are i.e food, bills, leisure, etc.
Can someone help with this? These things are so much easier when you see it in writing and it makes sense.
Thanks for reading/responding.
Hugs,
Juliette de Sade
Re: ISO Best Budgeting Plan Possible!
Juliette, the first thing you need to do is sit down and calculate your "minimum income" level needed to make ends meet. This means adding up your monthly mortgage/rent payment, your typical utility bills, your typical costs of car payment, gas, auto insurance etc. Whatever this adds up to as a total per month, stick on another $500 ($125 per week) for food and unwelcome surprises. This grand total is the amount of money that you NEED to live on - typically maybe $2000 per month. Divide your own number by the number of nights you usually work per month (say 20 for example). This means that every night you work you need to put away $2000/20 or $100 to cover these minimum living expenses.
Next, take a guess at your tax bracket based on prior years tax returns. Typically this is somewhere in the 20% to 40% range depending on the state you live in and the amount of money you earn. Then every night that you work, you need to put aside 20% to 40% of what you earned (say $125 on a night that you earned $400 gross) to cover estimated tax payments.
Depending on what kind of a night you had, this should still leave a fair amount for other purposes. In the case of my example it would be $400 gross - $100 minimum living expenses - $125 estimated taxes = $175 . If it were me I would then earmark the next $100 for a savings account. On average nights like my example this would still leave $75 in "mad money".
However, on slow nights this might not leave anything extra after you contribute the $100 to your minimum living expenses, 25% or whatever your actual tax rate is worth of estimated tax money, and another $100 to savings - meaning that since minimum living expenses must be paid and taxes must be paid that savings will have to take the hit. But you MUST have the discipline to put all of the $100 aside for minimum living expenses, another $125 or whatever aside for estimated taxes, and yet another $100 aside for savings before you allow yourself to reach into your night's earnings for "mad money".
I keep three separate envelopes in my home safe, and every time I come home with earnings it gets split up and put in the envelopes. If and only if there is still extra money left over after I've made my "contributions" to the three envelopes for minimum living expenses, estimated taxes, and savings, do I consider myself able to afford something non-essential.
Re: ISO Best Budgeting Plan Possible!
What Melonie said. Figure what you NEED to live on, keep track of what you earn for a period to see a daily/weekly average that develops, then subtract what you need, set a weekly savings goal, then if you've hit your savings goal for the week and paid the bills, you can spend whatever is leftover or add somemore to savings.
Re: ISO Best Budgeting Plan Possible!
Mel gives good advice. All I can add, is get a ledger or better one of the excellent computer budgeting programs. MS Money or Quicken (Quick Books if you are self employeed as most of us are) will do a great job of helping you set up a budget and tell you when you are deviating from it.
As far as ratios, most banks will tell you that 1/3 of your takehome pay should be spent on housing. I think this is high, but then banks are in the business of lending you the most money they can to get the most interest possible. I personally aim for less than 25% in all housing, including utilities, mortgage and home equity payments, projects insurance and taxes.
XOXO
Z
Re: ISO Best Budgeting Plan Possible!
I do the envelope thing too.
I have envelopes for utilities and housing expenses, envelopes for long term savings, and envelopes for short term saving for school. Also envelopes for new furniture, going to a conference I want to go to, fixing the car, etc. Oh, and an envelope for receipts! That's important!
Lena
Re: ISO Best Budgeting Plan Possible!
What Melonie said... also remember to Pay Yourself First. This doesn't mean forget about your bills... pay them when you need to pay them not before you need to pay them.
That's how I work and due to working like that I've never paid a bill late and always had plenty of money to invest (in savings and then eventually into investments).
Re: ISO Best Budgeting Plan Possible!
Okay cool.
I just sat down and reviewed finances with my father. You guys are absolutely right. It also puts things into an easier perspective. These days I am keeping a log of my earnings and dividing it accordingly into 5 separate envelopes. I totally see this working...it's working for me now! I seem to have more money.....this happens when compulsive spending becomes null and void.
You all rock.
Juliette de Sade