Budgeting is not a difficult task. It’s a primary step to financial freedom. You only need a simple plan. A sheet of paper will do. Planning is the key; understand your real expenses. When you plan your expenses they take on real value; planning helps identify expenses that are not actually necessary. Simply list them all. If you are paid weekly plan your budget weekly; or budget on your pay schedule.
Here is an example of a simple budget where you are being paid weekly. Divide your monthly expenses by four:
Car Payment 75.00
Now it’s clear that you require $450.00 per week of take home pay to cover expenses; this is your after tax pay, not earnings of $450. The government gets their taxes first! Most people will need to earn about $600 to fund the budget example, and this is before savings.
Here’s how you do it. Use the simple technique of prefunding your expenses. When you are ready to actually pay the bill, the money is already in the pre-funded account.
Set up a separate checking account at your bank for each of your prefund accounts. Each payday deposit $180 into your home account that covers rent, electricity and telephone in our example. Deposit $100 into your food and entertainment account. Deposit $170 into your auto account which covers the car payment, gas, insurance and repairs. Use a bank that has free accounts, or free if you keep a minimum balance or receive direct deposits.
When a payment is due you make the payment for rent and you make the payment for utilities from the home account. At the supermarket use your debit card to pay directly from the prefunded food and entertainment account. If you decide to eat out the debit card works like a credit card in the restaurant except you can’t overspend the balance of the account. Watch your spending or you might not be hitting the gay bar this week!
Here’s the fun part. If your rent is $600 per month and you fund your account $150 each week, at the end of the year you will have funded the account $7,800. Your rent payments will have totaled $7,200. You have one extra rent or mortgage payment. Just like a tax refund except you have the money all along.
How does that happen? Simple, there are fifty two weeks in each year and you divided your monthly rent by four even though there are more than four weeks in most months.
However, an extra rent or mortgage payment would not be used for that purpose now would it? What could you do with the extra money? Spend it on the latest gay fashion? No. Save it? Correct. Each little bit of savings you create contributes to your wealth and sense of financial well being.
The same holds true for your car payment, though variable auto expenses such as gas and repairs may consume any overages. You can build up a little extra auto repair cushion using the weekly method.
When you prefund, you provide for the times when things don’t go your way. You have worked too hard getting your financial life in order to have it thrown in disarray if you change jobs, get sick or have a significant unexpected expense.
Prefunding is a great way to really get ahead of your spending by creating a budget and planning your expenses. Now the stress is removed from bill paying because you fund the bills with earnings before those earnings get spent elsewhere Ric Reily