How are you all doing today? I’m doing well.
Yesterday, we started discussing budgeting and we talked about figuring out your income.
Today, I plan on talking more about making a budget by figuring out your expenses for the month.
First off, start going through the past 12 months of your bank and credit card statements and record all of your purchases. Code those purchases into expense categories and add up all of the purchases in each category to get a total amount for each category for each month.
Once you have finished that, realize that your expense categories your expenses will fall into type of amount categories (you need to understand this before we go any further) :
- Consistent amount expenses– These are the expenses that will usually stay the same amount each month no matter what (e.g. Rent, Phone, Cable, Insurance, Loan payments)
- Variable amount expenses- These are the expenses that will differ from month to month (e.g. Groceries, Personal Expenses, Electricity, Water, Gas and Transportation fees)
Now, let’s start creating the expense totals for your budget.
Here’s how to do that:
- For consistent amount expenses, just go ahead and record the expense category and amount you pay each month for that expense onto your expense list for your budget.
- For variable amount expenses, add up the total amounts for each variable expense for each of the past 12 months (e.g. Add up what you spent on groceries for each month from the 1st month to the last month) and get a total amount on what you have spent for the year for each variable amount expense. Divide the total amounts by 12. Put those answers and the expense categories on your budget. This will give you an average on what you spend each month on those expenses.
I’m going to warn you now that recording what you have spent for the past 12 months and coding them to the proper expense category will probably overwhelm and bore you to tears. I recommend doing 1 to 2 months a day (You can do more if you haven’t spent that much money). This helps prevent mental exhaustion and boredom.
Tomorrow, we will get your budget put together, organize and clean it up.
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Thank You and Have A Great Day