My budget is a flexible budget, it is not your typical locked in stone budget as my income and outgo from my pet sitting business varies constantly. Every time my income changes, the budget changes. We use it to scratch out an estimate of what we think the month will look like and fix as needed. If you have a steady income, you can work out a much more structured budget.
A budget is a great tool to keep tract of how much money is coming in and how much is going out. It helps you set limits on expenses such as food and gas, see what bills are causing budget issues and is a wonderful resource to plan for changes in your finances. Again, there are a lot of great websites with budget plans and even software that may be perfect for your situation, when starting your budget you may need to try a few types before you find something you can work with easily and fits your lifestyle. For this article I’m going to assume you will be trying to bring in extra income to pay off bills and therefore will be working with a flexible income.
Just like our Payoff List, we have our budget set up in a word document on our computer so we can easily make changes as needed. My income is sporadic, so our budgeted month often changes as more people call for my services in that month. I write out a weekly budget for an entire month. I start the top with the current amount I have and the dates for that week (the dates help me know which bills are going out each week) Then on the top of the list I put all known income and below that I put all expenses for that week. I then add the income to my current balance and minus the outgoing from my income to find how much I have left over or how much in the minus I am for that week. Then I use that total to roll over into the next week. With this budget, I know if I’m going to be in the minus by week three I need to make changes, cut corners and find sources of income to correct that negative balance. I find a weekly balance a lot easier to work with then a monthly.
Fictional example:
$232.00 starting 9/3-9/9
+$400.00 Spouse income
+$52.00 farm
+$234.00 business (smith)
+$65.00 business (Jones)
+$500.00 Other income
-$50.00 food
-$40.00 gas
-$1,000 mortgage
--------------------------
$383.00 left over
When your planning to pay down debt, it’s very important to know how much you have left over on your worst week. For instance, if you have a weekly balance for the whole month you can see what you have left over on your worst week, that week where there seems to be more going out then coming in. If you’ve budgeted correctly, you will have been able to make adjustments to your budget earlier in the month and prepared for that bad week.
Decide how much to pay down on your bills for the month based on the balance of your very worst week. If you have $500-$600 leftover on most weeks but only $150 on your worst week then you really only have about $100 to pay down debt with that month. It’s a good idea to leave a tiny bit of leeway in case you’ve forgotten a bill or an unexpected need comes up. Make sure to be realistic with your expenses, if you budget $30.00 for food but you spend $100.00 your going to be in big trouble!! It is better to budget what you really need and prepare for it, then to under budget and spend more. If you can spend less then your budgeted amount, thats great! Next we will take a look at the positives and negatives of starting a savings before paying down debt.
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