By Finbar Garcia
LUTCF, FSS, MFA
Welcome back to your dollars and sense, I do hope that your appetite is open for more. Today we will chat about ‘Preparing a Monthly Budget’.
Before we delve deeper, what is a budget? According to the Collins English Dictionary, it’s “money allocated for a specific purpose in time”.
So, let’s consider this: in life there are three sources of income:
Governments to corporations prepare budgets; it’s all part of prudent accounting. A budget has two parts: Income and Expenses.
Income in this instance would be the ‘Net Income’, meaning after tax and other statutory deductions.
Expenses can be placed in two categories: ‘Fixed Expenses’ and ‘Variable Expenses’. Fixed expenses are those that remain constant over a period of time, with little or no change, like a mortgage payment or a car loan.
Rent/mortgage, savings (yes that’s right!), car loans, car insurance, water bill, cable & internet (package), house insurance, life insurance, health insurance, retirement investment.
Did you wonder why there is ‘savings’ as an expense? The biggest mistake that anyone can make is trying to save AFTER your expenses. Money is usually finished at that time, and you will say to yourself…. ‘Ok, next month I will start’.
Groceries, light bill, telephone, school expenses, vehicle expenses, charity, church, entertainment, credit card payments, etc. These expenses vary from month to month, depending on your needs, wants and habits.
I listed some expenses but may have left out those unique to you. At this point I would like you to create a budget or revisit your current budget, email it to me if you wish so we can have a chat. These variable expenses are the key areas that we need to focus on, as it can lead to unnecessary spending and less towards savings.
This can be weekly, fortnightly or monthly, it really doesn’t matter. It depends on how you pay your bills or set aside for your expenses. In most cases, some of these Fixed Expenses can be taken out from your income source, salary deduction or standing order. By doing this, it affords you the opportunity to budget better with your Net Income on the remaining expenses and gives you the peace of mind that your major bills are paid.
If you are in a joint income household, then splitting the expenses is often the way to go. We can look at both income sources to determine who carries what expense. This can be a challenge at times, as both incomes may not be the same amounts or one may be a commission-based income, which can also be a bit of a pickle or a plus.
Once you determine who will pay certain bills, then it’s easy sailing from there. After you list all your expenses, there is usually either a surplus or deficit. How do you deal with that?
My advice, if there is a surplus and you can maintain it until your next pay cheque, transfer that amount to start your Emergency Fund. Do not leave it there, you will spend it.
On the other hand, if there is a deficit, it means you are living beyond your means, and in this case, you need to cut back on the Variable Expenses.
Creating that Emergency Fund will assist if you encounter any deficit in any month. Have a wonderful week.
Stand in faith, even when you’re having the hardest time of your life.
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