It’s common knowledge that before the end of the 2nd week of payment many of us find ourselves broke and out of cash. This feat has been the butt of jokes forever but in reality there is nothing funny about finding yourself in a cashless situation because somehow you are cash trapped. This happens for several reasons but ultimately its because we do not budget and set priorities, although in some cases they are unforeseen circumstances but experts would tell you to account for everything accountable when you are writing up your monthly budget.
Below is a step by step way you can actually budget your funds so as not to run out of money before you receive your next salary, in other-word this is how to avoid being broke;
Step One: Income Calculation
Depending on where you work its important to calculate your income after tax. If you are paid on commission calculate by going over the last six months to create a realistic monthly pay.
Step Two: List Non-negotiable Expenses
Its very important to tally the fixed expenses. This expenses are the re-occurring cost that are vital to your well-being and you have to pay every month (utility bills, health bills etc) or commitments you’ve made earlier. Don’t forget cost that come up every twice in a year like insurance, you can leave out funds by calculation the average monthly cost of this bi-annual cost (it can be done for quarterly and annual cost too)
Step Three: Chart Variable Expenses
Its time to list out your variable/extra expenses which is directionary meaning they can change at any time of the month they include shopping expense, gym membership, hair appointments, movie expenses etc. To get an accurate forecast on your extra expense you have to go through what you’ve spent in the past.
When you are done and have them listed in a rough sheet, its time to analyze your habits and create a guideline for your spending. Identify the area where you spend money and check the list to see if you can cut back on some of the expenses.
Step Four: Subtract-What do you have Left
Add up your monthly fixed expense and variable expense then subtract it from your salary after tax what you’ll have left is your discretionary income (leftover money). Ideally your left over money should put into long term goals life saving for a house, retirement etc The aim is to increase your discretionary money so go back to the variable cost and check for areas where you can cut back on cost. You have to figure out how to balance your expense and savings out so you don’t spend more than you make.
The solution is to follow either of this two steps, reduce your variable expenses by 15% or go through your budget and check for areas you can cut dramatically.
Step Five: Evaluate your Budget
This is the final and most important step, calculate the % of money you put into each area of your budget then review the budget and be discerning. Look at the budget and ask yourself are you happy with the amount you are spending? are you happy with the amount you are saving?
Don’t loose momentum because it’s time to test if your budget works realistically. Remember a budget is a work in progress because you have to check out their realistic limits.
Remember go through your budget and ask yourself how confident you feel about your financial future? you might find a different answer after this 5 steps.
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