Be Great Today!

The key to creating a personal budget that works is quite simple, so let’s jump into it.  You have to know 3 things:

1. How much you make, your income

2. A monthly list of your fixed costs

3. A monthly list of variable costs

First, let’s cover the income piece of the equation.  Everyone’s situation is going to be a little different, so we’ll use as realistic numbers as possible.  Say you make $40,000 per year.  Your income after paying taxes will actually be $33,582 (taxes on $40,000 as of 2008 will be $6,418).  That will make your monthly take home $2,798.50 ($33,582 /12).

Now it is time to build your fixed expenses section.  This section should be about 60% of your total take home.  This can vary greatly and is where you can either make or break a budget.  You have living (rent/mortgage) expenses, auto (beater with a heater, sleek sports car, or something in between), food, utilities (including cell phone, electric, water, heat, gas, etc…).  The most important piece of your fixed expenses should be to pay yourself first (personal savings).  You should pay yourself, or save at least 10% of your monthly income, upfront.  This will be your financial foundation and can be used to build your emergency fund (at least 3-6 months expenses).  After the emergency fund is in place take that 10% and put it into your companies 401K or IRA.  When you are not living paycheck to paycheck, that is a very empowering feeling.

Finally, you have your variables expenses.  These expenses include entertainment, clothes (it’s important to look good, but it doesn’t have to be top of the line designer labels), travel, etc.

You may notice certain expenses missing, simply add or subtract whatever is unique to your situation.  For example, most people may have loans and/or credit card debt.  Get your credit card debt paid off first, then put the balance towards savings.

Here is what a sample budget looks like:

Monthly Income =      $2,798.50

Personal Savings =      $  280.00

Rent =                         $  600.00

Car =                           $ 500.00 (includes car payment, gas, insurance)

Food =                        $ 150.00

Utilities =                     $ 150.00

Entertainment =          $  150.00

Clothing =                   $ 150.00

Student Loans =         $  150.00

Total Costs =             $2,130.00

Total Mo. Savings = $ 668.50   

It’s not what you make that’s important, it’s what you save! – Budget well, Live Well!