This post is part of the series Budget Guide
Other posts in this series:
- Budget Guide: Monthly Income and Bill Schedule (Current)
- Budget Guide: Evaluating Housing, Bills and Expenses
- Budget Guide: Organize Your Savings!
I believe I had been modestly frugal for most, if not all, of my life. I am the type of person that really dislikes seeing hard earned money leave my bank account, unless it is for something that I have planned for. I might, on rare occasion, do a spontaneous purchase, but then I usually tighten my belt for weeks afterward to not just make up for it but to save double the amount.
I just dislike spending money unless it is absolutely necessary. I have been keeping track of my income, expenses, and savings – in one form or another – since I moved out on my own and became solely responsible for my own rent, bills, and day-to-day expenses. I have been intentionally putting money away into my savings all of my adult life, and though by no means am I an expert or even exceptional, I feel that I have learned quite a bit from my experiences.
The next few posts will be about finances, specifically how to set a budget and build up a savings for the future. If you do not already have a budget or method for tracking your expenses, feel free to use this as a guide.
Average Monthly Income
The place to start this journey is to understand your total monthly income, whether you are paid weekly, biweekly, or monthly. Do you have one source of income or multiple sources? Do you have a steady income that is about the same every paycheck or does your pay fluctuate from paycheck to paycheck? All of this information is very important to understand, because it is difficult to set a budget without knowing how much money you bring in on a monthly basis.
I recommend tracking your income for a few months using a basic spreadsheet. If you are in a hurry to set your budget and your income is somewhat steady, you can fill in the spreadsheet retrospectively. However, I find it easier to track moving forward. Three months is a good sample size.
Also about what time of the month do you receive your paycheck(s)? For example, I am paid biweekly so I usually have two paychecks a month — one near the beginning and one around the middle of the month. Every once in a while I receive three paychecks in a month. It sounds great at first because you think: “Oh! A whole extra paycheck to play with!” Unfortunately, this extra paycheck tends to throw my bill paying schedule for the following month out of whack.
How you deposit your paycheck(s) is up to you. Some businesses still only hand out paper checks which require you to physically go to your local bank to deposit it. Others allow a direct deposit option where the money is sent directly to your bank account. I have chosen direct deposit as my bank does not have any branch offices within a thirty minute drive so it is near impossible to get to an office before it closes without taking time off of work.
Once you have a clear idea of your monthly income, take a look at all of the bills you pay on a monthly basis and mark down when they are due and when you usually pay the bills.
Since I have a biweekly paycheck, I divide my bills into two groups: those that are paid using the first paycheck of the month and those that are paid from the second paycheck.
The first group of bills paid are rent, since it is due on the first of every month, and insurance, as it is usually due in the first week of the month.
The second group of bills include utilities, electricity, internet and mobile phone as all of these are due towards the second half of the month (usually all after the 15th of a month).
Dividing up my bill paying like this works very well as the rent is usually a huge chunk of money that is taken out at one time. I use a Google calendar to keep track of when bills are due and which ones have been paid and on what day.
How you pay your bills is your choice. Quite a few years ago, I decided to go the paperless route. This allows me to pay my bills the day my paycheck becomes available in my account and mark them as paid in my calendar without having to wait for mail and sort through papers.
To start on your budget journey, I recommend setting up a calendar for scheduling your monthly bills and a spreadsheet for tracking your monthly income. These can be a physical calendar and spreadsheet or digital. Some people really like the feel of paper and writing by hand.
For convenience sake, I have chosen to utilize Google Drive with its calendar and spreadsheets. I already have a Google account so it made sense to use its built-in features. This allows me access to my information from anywhere I have Internet access.
In the calendar, I create an “event” for each bill and have chosen a color to represent bills so I can see when all are due at a quick glance. I usually label the bills: BILL – utilities ($xx.xx) so I can easily see which bill it is and how much without having to open the “event”. After a bill has been paid, I modify the label to reflect that: PAID 6/17 – Utilities ($xx.xx).
For the spreadsheet, I created a very simple table with a column for deposits and one for each month of the year. In the rows beneath, I mark what type of deposit it is (paycheck, dividend, other) and how much is received. Using the basic formula =sum() to total the cells in a column, I gather the total for each month and then for the whole year.
Below is a sample of the spreadsheet. Scroll to the right to see all of the months.
Today we talked about the importance of knowing your average monthly income and having a bill schedule. Both are important when it comes to setting a budget and making plans to save more. In our next post, we’ll take a closer look at ways to lower your monthly living expenses.
Continue reading this series:
Budget Guide: Evaluating Housing, Bills and Expenses