Are you good with finances?
I’ve had a knack for managing money from a young age. I like to spend as little money as possible because it makes me happy to see money saved.
I realized the other day that I haven’t shared how actually to make a budget. If you don’t know how to make a budget correctly, then the rest doesn’t matter.
I’m going to share with you how to go about making a budget. I’ll share my process for preparing a budget on a fixed income and everything you should consider when putting your budget on paper.
Here’s how you make a budget to manage your finances better:
Budgeting with a Fixed Income
We’ve recently gone back to having a fixed income. For eight years my husband had a job based on piece work.
His paycheck depended upon how much work was available. However, he started a new job about six months ago which is a steady or fixed income.
We know exactly how much each check will be, and I must admit, it’s a little scary at times. For eight years, I learned how to ride the wave and know there would usually be a big check to cover what we needed.
Now, the money is what it is. You either budget for your expenses, or you don’t. There are no ‘make-up’ checks.
Here’s how I developed a budget for our new fixed income lifestyle:
1. Know Your Income
The first step to creating a budget which works is to know how much money you will bring in each month.
It’s a great first step because you know what you’re aiming for. In my husband’s case, he works overtime regularly.
Therefore, I budgeted for the extra hours he usually accumulates. He knows our budget depends on those extra hours which keeps him motivated to keep working them.
In my case, I make a certain amount a week. I’m lucky to have a flexible boss, but I try hard not to have to call on him.
For instance, this week, I’ve been under the weather (Yay! Winter time with children who spread lots of fun germs… said no mom ever!), but I know our budget depends upon me hitting my deadline.
Therefore, I sucked it up and went to work.
Knowing your regular income or even having a realistic income goal (if you work for hourly pay) is what you should base your entire budget around.
But it’s also there to kick you in the rear-end when needed to make sure you stay on track for your budget.
2. Know Your Bills
The next step in creating a budget which works is to list all of your bills. Any bill you’re expected to pay during the month, write it down.
For the bills which are a set amount each month, write down the fixed amount. Bills such as utilities which can vary, write down the average cost.
Again, this gives you a goal to aim for during the month to keep your bill at or below the said amount.
Once you know your total amount of money earned and a total amount of money owed in a month, this should let you know how much money you have left over to play with during any given month.
Also, once you know your bills, be sure to write down when each bill is due and develop a schedule for each bill being paid on time.
Knowing when to pay your bills, can help to decide which income source to use at what point. I also recommend getting as many of your bills on auto-pay, because it takes a load off you.
Anything you can do to make sticking to your developed budget easier is the path to take.
3. Include Annual Expenses
This step is vital in developing a budget which works. In step two you realized how much money you have left over in a month. You shouldn’t plan on merely blowing this money.
Each dollar you earn should work for you and work towards the process of making your future better and easier.
Therefore, take a moment to consider bills which are due quarterly or yearly. In our case, we have car taxes which must be paid annually.
Half of our property taxes are tied into our mortgage, but we also have five acres we own outright. Therefore, we must pay yearly taxes on it out of pocket.
Other annual fees could include school fees, membership fees, the car's annual service, any licensing or renewals that applies to you or your family.
This should be figured into yearly expenses. Any bill you know you must pay during the year should be added into this total.
Once you have the total, divide it by 12 and add this into your monthly budget. Therefore, when the bill comes in, the money is already set aside, and you can pay for it.
4. Make a List of Needs
It’s a good idea to start this budget in January, if possible. It will allow you to view the entire year and plan accordingly.
I like to sit down and make a list of everything I know we’re going to need. For instance, I know we need:
- To save money
- Buy animal feed
- Purchase clothing for our kids
- Pay for homeschool materials, curriculum, and field trips
- Maintain our cars and boats
- Pay for any medical expenses
- Pay for Christmas and birthdays
- Pay for haircuts
- Do projects around the farm and house
- Set aside money for vacations, if there’s any money left over
This list gives me an idea of what I should be incorporating into the budget and assign where each of these expenses will be covered.
If you know what your needs are, you can become proactive at figuring out how to get them covered ahead of time.
5. Put Extra Paychecks to Work
One way I cover some of our needs is by taking full advantage of extra paychecks. My husband and I both get paid weekly, but we get paid on different days.
Therefore, we’ll each get a fifth paycheck on different months. Many of the needs on our list will be covered by these extra paychecks.
For instance, my extra paychecks go to covering our kids’ clothes for the year. While my husband’s extra paychecks go to covering birthdays, my haircuts, DIY house and farm renovations, and a possible vacation.
Don’t look at these paychecks as a shot at blowing money. Assign them a job and stay ahead to avoid unnecessary stress throughout the year.
6. Know Your Accounts
We’re fortunate to have a few extra accounts I can pull from throughout the year. One account is our Acorns account.
You link your debit and/or credit cards to this account and every purchase you make, it’s rounded up and the change is stored in this account.
It adds up faster than you might imagine. Therefore, I save the money in this account to pay for our Christmas.
We’re also fortunate enough to have a health spending account. My husband’s company funds a certain amount towards this account each year.
We can utilize the money now or use it during retirement. Fortunately, we don’t have many medical expenses, but I know anything which arises from doctor’s visits, medical bills, or over the counter medicine, will be covered through this account.
If you don’t have these accounts, consider opening a few accounts to cover these costs. Anyone can open an Acorns account, you can open a Christmas Club account to pay for Christmas, or open different checking and savings accounts where deposits can be made to pay for medical (or other) expenses.
7. Have a Plan for Debt
If you have debt, you should try to get out of it as quickly as possible. In our case, we try to carry minimal debt, but we do have a house with a mortgage.
Every little bit helps to pay the debt off faster. In our case, we set our house payment up for weekly payments.
This makes it easier to pay the bill each month and shaves off approximately three years from our mortgage.
Yet, we also accrue small debts throughout the year to help our credit score. I put our dog’s flea meds on a credit card each time she needs them.
I will also charge other small items, but I account for them from my income. Therefore, the debts are paid off quickly before they begin to accrue interest.
If you have debts such as a mortgage, credit cards, car payments, student loans, etc. try to make extra payments towards your smallest bill.
As the debt becomes paid, snowball the money into the next debt, and keep going until you’re totally debt free.
Definitely develop a plan for your debt while setting up your budget to get ahead and stay ahead of the financial game.
8. Giving, Savings, and Other Miscellaneous Expenses
When developing your budget, consider things such as giving, savings, and any other miscellaneous expenses you may have throughout the year.
In our case, we set a goal for how much we’d like to give each month and add it to the budget.
I set a savings goal for the year. This goal is divided by 12, and this is how much is budgeted for each month.
Our miscellaneous expenses would include things such as animal feed. I create an average cost for these items and this is added to the budget as well.
It’s understood up front what each of these items is intended for. Our giving goes to a place my husband and I mutually agree upon.
Our savings account is used to cover any unexpected expenses throughout the year and any home needs we may have. If something were to break and I need to call a repair person, this is the account I would pull the money from.
Make sure you add these items to your budget, to help avoid financial stress and crisis throughout the year.
9. Assign Tasks
If you’re part of a two-income household, you must assign tasks. In my household, my husband pays all of our living expenses because he has a full-time job.
Therefore, every important bill we have from mortgage to gas and groceries, come from his paycheck. He knows where his check is going.
For a breakdown. My husband pays each month:
- Annual expenses budgeted monthly
- Animal feed
In my case, I work an extremely part-time schedule because I’m also a homeschool mom, and I run our farm.
Therefore, I cover smaller necessities such as:
- our car and boat maintenance
- the clothing budget for the kids
- homeschool materials and testing materials
- homeschool field trips throughout the year
- debt repayment
Plus, we’re planning on taking our produce to the Farmer’s Market this year which will help add money back to expanding our farm.
We each have a job; we know what we’re working for, and where the money is going. This is important because if you feel as though you’re working for nothing, it’s easy to lose motivation.
10. What About Spending?
Spending money is an important part of a budget because if you can’t spend a little money, you’ll become burnt out faster.
Saving money and being financially responsible becomes difficult at times (even for those of us who like to save money!)
I’ll be honest, by the time I account for every little thing we need, we pay our monthly expenses, and we keep money for DIY home and farm renovations plus a vacation, there isn’t a great deal of money left to go towards spending.
Which is why I take a few other areas of sporadic income and budget for spending a year in advance. Throughout the year, it’s inevitable, we get some kind of refund.
Whether it be a tax refund, a refund from overpayment on a bill, or even when they refigure our mortgage each year, we’ve usually overpaid to our escrow account.
I make each of these refunds count. In the past, we put a ton of pressure on our tax refund. We thought we had to accomplish x, y, and z with it. When in reality, there would barely be enough to achieve x.
Now, there’s no real pressure to achieve a massive tax return. Instead, whatever money we get, we divide it by 12 and know it goes towards the spending money for each month.
We usually get an escrow refund around tax season as well. It is usually only a couple hundred dollars, but we divide it and add it to our spending account.
Any refund checks which come our way get added to this account. Before you know it, we have a couple hundred dollars a month to spend.
Also, any money we bring home over our allotted goal for our income also goes into the spending fund. Sometimes my husband works farther distances from home, and his drive time (which he gets paid for) will add quite a few more hours of overtime.
We’ll use the money to fund our spending. Considering most things are accounted for in our budget, we don’t have many wants.
Therefore, this would be what we’d use to go out to eat or do a special family outing we didn’t budget for elsewhere.
11. When You Don’t Make Enough
My friends come to me when they need help getting their finances in order. I can’t tell you how many nights I’ve spent around my kitchen table going through their bills and creating a budget to help them get right side up again.
What can I say? I love numbers, I love putting chaos in order, and I love helping the people I care about.
However, there are times when my friends come to me, and they’ve been hit hard with life. They don’t make enough to cover even their basic expenses.
If you’re in this boat, don’t give up. Instead, begin by paying your absolute necessities. Then, call the people you can’t pay.
Evenly divide the money left over after paying necessities between your debtors. Tell them you only have this calculated amount left to pay them each month.
Some companies will work with you and some won’t. You do what you can until money is freed up.
If you’re drowning, call a debt relief counselor. I’ve been in this boat before, and I used Christian Credit Counselors. (This isn’t an affiliate link. I’m simply sharing what has worked for me.)
They worked with my creditors, kept me out of collections, and also gave me a budget to help me live while I was climbing out of a hole of debt.
If you choose to go with a debt relief counselor, make sure they’re going to help you. Some will get you out of debt with your creditors only to charge you an outlandish interest rate or fee.
Don’t go this route. Keep searching until you find a company which will help you through this rough patch, not make it more difficult.
Well, you now know how to go about creating a fixed income budget create. I hope these pointers will help you to easily develop a solid financial plan for this new year.
Gaining control of your finances is something only you can do. It isn’t easy, but with a little hard work and self-discipline, you’ll be glad you accepted the challenge.