Keep Your Budget Simple

If you are considering making a budget for your personal finances, for whatever reason, it can get pretty complicated pretty fast.  There are so many different line items, and it could be overwhelming about what to include.  And to make matters worse, you probably already know that not making an accurate budget means that you are less likely to stick with it, and thus your budgeting plan will fail.  Here are some simple steps to help you keep your budget simple, and hopefully help you achieve your goals quicker.

Dealing with Income

The first lines of any budget have to do with income.  This can be hard sometimes, because you don’t always know what to put there.  I’m a big fan of keeping your budget simple and only using after-tax income on the income line.  The reason is because this is what you actually get to spend – there is no reason using gross income in your budget because you don’t get to spend it and you may get an inflated budget line.

If you have unequal income every month (say from dividends or maybe self-employment income), you should look back over your last year or longer and average it over the 12 months.  So, if you make an extra $1,200 per year doing side gigs, you could also say you make an extra $100 per month.  However, this only applies if you really make some money each month.  Say you work your local summer fair only once a year and make that $1,200 just in that week, call it what it is and only include it in that month.  Once again, the goal is to set yourself up for success and not inflate anything.

Dealing with Expenses

The next part of the budget equation is dealing with your expenses.  These fall into two main categories: regular expenses and irregular expenses.  Your regular expenses are the easiest ones to budget because they are the same each month – your monthly rent/mortgage payment, your insurance, and maybe some utility payments.  These are the ones you must pay each month and I like to make sure that you make sure these are included before anything else.

After the regular expenses, you get the irregular expenses – the ones that vary each month.  These can include some utilities (like electricity or water), but it also includes expenses like gas and auto maintenance, or groceries.  When planning for these, I take the same philosophy as the unequal income – look at your last 12 months of spending in these categories and average it for 12 months.  This one requires a little more thought, because you need to check if costs have gotten higher on items.

For example, as your vehicle gets older, the last 12 months of auto maintenance and repair expenses may not reflect the next 12 months of expenses.  And when budgeting, don’t forget to plan a bit for the unexpected.  I like to make sure I have a little pad in some of these categories, especially auto repair, to be able to deal with things as they arise. While it may seem like a lot if it is your first time, budgeting is actually quite simple.