Undoubtedly, the first time you sat down to do a budget you got out a spreadsheet. Me too!!!
Like me, you probably started at the first column and put down your income. Underneath that you did a brain dump of all the stuff you have to pay for each month.
If you were lucky, you came up with a surplus at the end of the month. Success!
Feeling pretty good about yourself, went along with your month buying groceries, paying bills, and writing those club soccer checks.
You get to the end of the month and then %@#$%! somehow, there isn’t enough money in the bank to make the mortgage payment due on the first.
HOW DID THIS HAPPEN???
The problem with budgeting in a linear fashion is that life does not occur in a linear way. Your monthly expenses aren’t evenly distributed along the month. Some weeks you might have A LOT of expenses other weeks not so much. And what about those things you have to pay for often but not monthly. What do you do with those?
So what should you do instead?
1. Get out that spreadsheet – It is still useful for the brain-dump.
2. Column 1 – Fixed expenses – Things you have to pay – think housing, car payments, student loan payments. Things which are at the same time every month and for the same amount of money. (You know, fixed)
3. Column 2 – Life Expenses – Things you need to live. You need to eat, get to work (gas), do work and school (internet), use utilities, and have a little fun (entertainment).
4. Column 3 – Random Expenses – These are things that don’t occur monthly, but do occur regularly. This could be quarterly or semi-annual insurance payments, car maintenance, home repairs, camps, or leagues
5. Total Columns 1 and 2 (Fixed and Life) – Add the totals together. This is likely what you called your “monthly expenses” in your budget
6. Total column 3 and then divide by 12. This is how much you need to put aside EACH MONTH so that you have the money available. Put this in a separate savings account so it is there when you need it.
There are a lot of little tips and tricks you can do to make this even more bullet proof – but this tactic will keep you from your budget being busted by irregular expenses.
If you are looking for more tips and strategies to make managing day-to-day finances easier, call or e-mail me today!