Good morning! I’m excited about today’s financial fitness post, but first, I want to share this with you:
Second day in a row I’ve had a smoothie for breakfast. I usually don’t have smoothies for breakfast because they don’t fill me up very well, but this one is seriously filling. I forgot to add the ice cubes, so I got less smoothie this time around. There is cottage cheese, almond milk, a whole apple, protein powder and peanut butter in this baby. And then, you take 2 T of oatmeal and mix it with applesauce and cinnamon, heat it in the microwave for 25 seconds and it makes this nice warm topping for the smoothie. I gobbled this right up. If you missed yesterday’s post, here is the recipe. Also, I drank this about an hour ago and I’m still super full. Win!
This morning’s workout didn’t go quite as planned. My workout plan was to swim a mile, but I realized I have no idea where my goggles are (they are lost forever, I fear), and I made a pact (with myself) to spend $0 until my next payday, so any swimming workouts are going to have to wait until next week. I decided, instead, to go for a run outdoors. I ran a mile before I realized I needed to use the restroom. ALL of the restrooms in the park are locked at 7 AM, apparently, so I had to run home, and then I went out again. I only got in 2 miles, but they were fast miles. I also did get in a chest/back lifting session at home, so all in all it was a success.
Now, on to the reason for today’s post: How to budget.
When Zach and I moved in together, I made a simple budget for our living expenses. I figured out about how much we would spend monthly, and then we opened a joint account and we both deposit a certain amount in there every month, from which we pay all of our household bills. We still maintain our own separate accounts and pay our personal bills from that. This has worked out very well! So well, in fact, that I’ve decided to do it for my personal bills as well. Since I’m the financial planner and bill-payer in our relationship, rather than opening a third account, I use our joint account for my personal bills as well. In fact, if Zach wanted me to, I would pay all his bills as well. I really love budgeting and planning.
Ok, so here is how I do it. I’m sure many people have various ways of budgeting their money, but this has been the easiest way for me to do it. I’ve tried online financial planners like Mint and LearnVest, and while they are fun to play around with, I like a very simplified approach, and this works the best for me.
1. Figure out your net monthly income. Obviously, you need to have a starting point, so I start with my net monthly income (the amount you take home each month, after taxes, health insurance premium, etc.) I’m not really interested in sharing with the world how much I make, so for this example, let’s say the gross take home is $2,000. Set up a spreadsheet with your gross monthly income at the top:
2. Figure out your monthly expenses. For my budget, I only included bills I pay every single month that don’t change very much — so this budget won’t include budgeting for things like groceries, entertainment, clothing, etc. — that is all budgeted out of the income left over after my monthly obligations. For bills that fluctuate with the seasons (gas, electric, etc. ), figure out the average cost: My electric bill is about $70 in the winter, but this summer it’s been over $100 (second floor apartment!), so I budget about $85 for that bill, and it all evens out in the end.
A couple of notes about this: If you share expenses with someone, put half the amount of those expenses in your budget. I did this example as if this hypothetical person lives alone. Obviously, you may need to delete some of these categories or add some of your own. For example, I try to spend about $100 on my credit card each month, and then I allocate that amount to pay it each month as well. This may seem weird, but this is my plan to stay out of credit card debt and boost my FICO score.
3. Add up your monthly expenses, and divide by the number of times you get paid a month.
Once this was completed, I would set up my direct deposit so that that amount went directly into my “bills” account. From the rest of my income (by this example, that would be $474/month), I would allocate clothing, grocery and entertainment allowances and also put some into savings.
That’s all there is to it! I really like this method because there is no questioning how I will pay the above bills each month. The money is already there, and I just write a check or use my online bill pay. I know that having 2 or more bank accounts would be confusing to some people, but for me it’s the easiest way. You could also use this method via Mint or LearnVest, by just setting up their budgets.
Do you have a budget?
Do you use an online budgeting tool?
Do you have more than one bank account?
Do you have suggestions for an upcoming ‘Financial Fitness’ post?
Next week: Saving on groceries!