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I have read advice and blogs trying to merge accounting principles with budgets for an individual. So far these attempts seem to go over reader’s heads, so I am offering something I kept from my attempt at this for my own budget.
For a Simple Budget, Keep Record of:
- Fixed Cost – These are the bills that do not change, car payment, insurance, internet, phone, trash, mortgage or rent. These will be fixed amounts you have to pay.
- Variable costs – Gas for car, electricity, water. These will be paid by allotments you make (an amount set aside that is an accurate guess of what something will cost), with an extra $5 for gas and $20 for other utilities on top of estimates to cover surprises.
- Income – All the money you bring home after taxes.
The best budget structure I have seen regarding an individual’s budget, is the one that makes their bill payments and paydays coincide.
For example, if you are paid weekly take your fixed costs and variable allotments for a whole month and divide them by 4 and there you go, you set aside the same amount every week to pay bills.
If you get paid monthly it could be easier if you decide one day just for bill payments where there is enough time so that nothing is due before payment arrives.
I then take an amount for myself for me to eat and I say $xx.xx / day.
Overtime I may not have spend $3 or $5 out of my allowance; this accumulates into a surplus. I try to have a surplus by observing when I can eat cheaper by not getting a combo or soda, and instead, drink water I bought in bulk. This is why I liked this budget structure as it brought my finances into my everyday in a way I could understand and take control of it. By taking the time to understand your financial situation, you support being in a healthy financial situation. It is easier knowing how much you can spend on yourself everyday and get an idea how you are doing towards your goals.
This is not the only financial control and report you can make for yourself. You should still keep records, updated check books and other important financial as usual.
Daily allowance – figure out an amount that you can spend every month and divide it by the number of days in the month or per week, or divisions of the pay period (so if you get paid monthly, determine a fixed weekly balance then daily), this amount is your daily allowance. So as you go through your day buying food you can keep track in your head if you are spending more or less than your amount. By doing this you can tell whether you will be over or under your budget.
Surprise/Unexpected Cost – for those times of the unexpected, it is wise to always have a little more money than you need. You never know as most of the time something can happen that draws more cost than was put aside. You would normally have to dip into your savings, but with an amount set to the side, you could be more prepared for unexpected costs. Such as memberships, car service, etc.
Recreational – if you can make an amount set aside for having fun, living your life will feel less like a chore. Setting an amount aside for each period to have fun helps you limit how much you spend each period and leave less up to chance. You could also plan in advance to help you know final amounts before they are spent.
The problem is when people do not plan for particular spending they put themselves at risk of being behind on the ability to take control of their financial situation. Life may seem like it gets ahead of you when your finances are spent without being conscious of it in the right way, but with proper planning; you can remain in control.
In my YNAB budget, I named my variable expenses “things with a little bit of flexibility” when I first started and didn’t really know what they were called. Great post!