Articles - Archived Expert Advice

Creating a Budget That Works

I've read countless articles telling me I need to budget and manage my money better. Unfortunately, the articles all seem to say the same thing. Can you offer something that helps for real?

You bring up a good point. Perhaps in the articles you have read in the past, you are being advised to create a monthly budget. Here's why that doesn't work: In reality, consumers spend on a daily, not monthly, basis. To create a budget that will really work for you, start by recognizing your financial position, then create a workable budget for 2010 you can stick with.

Here's how: Start with your salary, so have a paystub handy. Let's say you have a monthly net income of $1,875. Now, instead of simply dividing this figure by the number of days in the month, multiply $1,875 by 12 instead. This will give you a net annual salary of $22,500. By working with your annual net, you have a true picture of available funds for the year.

Next, determine your total consumer debt and monthly expenditures for the year—these are things like bills, mortgage/rent, etc. Let's assume these obligations come to $18,500. That would leave you $4,000 of discretionary income to work with annually. That's roughly $333 monthly or $11 daily.

In this example, if you spend more than $11 a day, you will realize a shortage at month's end because you are spending more money than you are bringing home. An important part of developing a budget and managing finances involves being aware of exactly what you have, like your "actual" daily discretionary income—which you have just learned to calculate!

Remember, once you are able to identify your financial position, you stand a better chance of creating a budget you will actually follow. As always, if you need help along the way, give us a call at 877.367.5428.