As the month draws to a close, bills should be current for the month so now you must move onto the plan for the following month. This should be done in the last week of the month. I just documented the steps I take when I did this month’s budget last week. It’s like putting a jigsaw puzzle together and then when all your bills have been satisfied, taking it apart to re-engineer and re-think the next month. The pieces change and never fit back the same any two months in a row.
Prepare Your New Debt Payment Chart
As I take one last look at my October Debt Payment chart and see I have not only paid my current bills for the month but also met the minimums it is reassuring and less stressful for me to actually see where I am. Also, I can see the benefit of continuing the process of outlining my debt every month and realizing that once paid off and eliminated I will have another $400-500 a month clear to save for future expenses. This is almost $6,000 a year that will be freed up to put into my IRA or savings account.
I can also see putting the chart together a new chart each month at the start and then updating it when I make the payment the next paycheck just where the total owed changes and not how that change occurred – be it interest or another purchase, and evaluate if I can cut this down from happening or not. If the increase came from paying a bill and not available cash, that caused me to tap into credit to get it, do I really need it at all?
Now that everything has been satisfied in the first week of my budget for the month and I have stayed within my available funds doing so, I can put any extra money that comes in into savings to go towards my budget for next month.
Create Your Next Month’s Brainstorming Chart
Your debt chart analysis and new chart prepared, you are ready to start thinking about other bills you have and must pay in the upcoming month. Just fill a blank sheet up with these items, who your suppliers are and the amount due next month, if you know it, or just leave the amount off. Just fill-up the jigsaw pieces with all these things you think of. If you have any pieces left over, we will just color those black.
Take a few days to really think and make sure you include EVERYTHING you have to pay next month into the puzzle pieces before we do any coloring in. One piece is already added – “Debt Minimum, $______”, just imagine someday being able to color this block in black. Your new block then will be – “More Savings – $______”.
Key Elements Needed in Your New Budget Period
There are two key components to your monthly budget. They include, but not limited to, the following areas:
Under these two categories, everything falls. We need to be setting the next month’s budget as soon as all the expenses for the current month have been met and your new debt table is established, some months will be tough, very tough! One may even have to forfeit an important event they wanted to attend just to balance these two components out. A good formula to think of when balancing these to key items is:
YOUR INCOME must be > or = YOUR Expenses
can never be otherwise as income less than your expenses incurs greater debt. When expenses are greater, you have two options – either cut your budget or go out and secure another job to make ends meet. Now let’s move on…
Start with Your Guaranteed Income
Carry-forward Balance – this you will not know until the new month has begun. With all your expenses paid from the previous month from the total income – move the balance remaining forward into the new month.
Expected income for the month that rarely changes except maybe for an occasional COLA. If you are retired, this would be your pension or social security or both.
Other miscellaneous income you receive throughout the month – these two you will not know until the actual month and will be ever-changing so best to use a pencil and eraser.
Subtracting Your Monthly Tithe
Some day when all my debt is gone, I look forward to doing a full tithe each month to my church, which I calculate around $250 a month. For now, I am up to $100 a month and make sure this is the first deduction listed on my monthly budget sheet. Perhaps it is just me, but I feel when I carry out my tithe I never seem to have to worry about my budget – somehow everything falls into place. However, if I miss a week or two of tithing, I am flustered and feel a sense of I will never catch up. My budget seems to go astray.
Encumber Your Minimum Debt Payments
Once a portion has been allocated for tithing, next I look at my new monthly debt chart and total up all the minimum debt payments I need to make to stay current, no counting any student loans or mortgage as those are part of my fixed expenses.
Then I take that total and subtract it from the balance after allocating a portion for my monthly tithe. As each debt is paid off, the minimum I paid to satisfying account is now rolled into the minimum balance of the next account on the list each month until that one is paid, and the process is repeated over and over until all debts have been paid off. This is more commonly known as the “snowball method”.
Accounting for Your Fixed Expenses
Now list all your fixed expenses you pay every month and amount due in the new month. Expenses included in this category are a mortgage, lot fees, electricity, heat, student loans, groceries, etc. Having completed listing these expenses total them up and subtract the amount from the balance left available after allocating funds for minimum debt payments.
As each payment clears, you need to highlight and mark those entries in your budget journal. Once these have all cleared, list any other expenses you have and decided it they are really necessary, if no cancel them and ask for a refund back of the last month’s payment or two. If the answer is yes, and you want to hold onto that service or product – then add it to Other Expenses category, and add them up – subtract this from the amount left after fixed expenses paid.
One Last Word Here…
Suddenly I realized as I sat back and watched all the bills clear, leaving a small balance that my system is building awareness to what I bring in and that is the key to wise budgeting in retirement. If only we learned this growing up from our parents and education, just think how much more we would have prospered.
If after all that you still have an available balance – stop and assign that balance a job, perhaps paying down the first item on your debt list or add it to your Emergency Savings until you reach baby step one in savings of $1,000. (but as I said, my baby step goal is to have a minimum of $2,000.
Do you have any questions or concerns in balancing your income and finances? Please leave a comment below and share your them so we can better help you, and others who may be thinking or experiencing the same issues.