Following a few simple steps will get you moving.
We’ve all been there…devouring the Zillow listings in your dream location, or looking at Houzz and seeing yourself in an amazing master bath or perfect kitchen. The reality hits when you look at your savings account or see the stack of bills on the corner of your table. The air let out of that dream so quickly.
Don’t be discouraged. The team at My Real Estate Advisor Team is here to help you with the first steps in reaching the dream, and eventually relaxing in that soaker tub with a glass of your favorite beverage. The steps are simple, but they require discipline and a hard look at the emotions connected with making and staying on a budget.
Making a budget is simple:
- Write down your total income for the month.
- Write down ALL your expenses in the month.
- Subtract expenses from income.
- Track your expenses as the month goes by.
Simple, right? Let’s break it won for you step by step.
Preparation:
- Grab your paycheck stubs for the last 3 months.
- Grab your bank statements for the last 3 months.
- Grab your credit card statements for the last 3 months.
- Grab a pad of paper and a pencil/pen.
The most difficult thing to do in budgeting is to not get discouraged. Don’t feel bad if you get to the end and find your expenses exceed your income. This is actually a good thing, and learning you spend more than you make is a powerful tool in managing your money instead of your money managing you.
It is possible that you will want to throw in the towel and tap-out of the process if you get discouraged. A Budget is simply an estimate of income and expenses for a set period of time. A budget is a moving target. You will be over budget in some areas, and under in others during any given month. If you find you have more expenses than income, you have the choice to cut spending or increase income. You are ultimately in control of the end number in your budget. See, you have control of your money, and not the other way around. Don’t get discouraged for too long if you see your expenses exceed your income.
1. Write down your total income for the month.
“This is your total take-home (after tax) pay for both you and, if you’re married, your spouse. Don’t forget to include everything—full-time jobs, second jobs, freelance pay, Social Security checks, and any other ongoing sources of income.”, says Dave Ramsey
The key with income is to only include consistent income sources, and the net income not the gross income. Including income from cash gifts, garage sales, sales on Craigslist or fb Marketplace don’t count as income unless you can see a consistent average on a predictable time frame. These are great, and you can use them in your budget plan, but you can’t count on them if they are not consistent.
The income goal is to have a consistent income to meet your present expenses over a given period. Include those income streams that you can count on.
Once you have the income numbers from all sources, we don’t want you to forget to add back into your net number all of your paycheck deductions that ultimately are expenses you would have if your employer were not paying you. Having health insurance, or a 401(k), or a direct deposit for savings are important to remember you actually have has expenses, but they are being handled before you get your pay. Nerdwallet reminds us, “if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures.”
2. Write down ALL your expenses in the month.
Pull out the bank and credit card statements. Go over every expense and categorize them into buckets (groceries, eating out, utilities, cell phone, subscriptions, auto expenses, clothing, personal care, medical, etc.). Don’t leave out the credit card statements in this process because it is likely you have monthly Spotify or Netflix being pulled from your credit cards as well. You need to know all consistent and inconsistent expenses when you break down your budget.
The people at Payoff Life say, “Because some expenses are intermittent, such as insurance payments, you’ll get the most accurate financial picture if you calculate an average for six months to a year. Add up everything you spent for the last six to 12 months and then divide by the amount of months, which will give you your average monthly expenses.” This 6 to 12 month evaluation can become time consuming and overwhelming, but as a practice the 6 to 12 month view is really accurate. For your first run at a budget, 3 months will work just fine and you will get started really well. The take away here is to look at all expenses (regular and intermittent) for a period to get the “most accurate financial picture.”
3. Subtract expenses from income.
You don’t need to worry about where you have spent your money right now. You simply need to total all normal monthly expenses (and yes, the daily trip to the coffee shop or eating lunch out on workdays are consistent expenses). Leave out the birthday gift to aunt Lucy, or the one time fee for flowers for your mom. These types of expenses can be important to know how they effect your net expenses, but for now, we are looking at the main/consistent expenses against your main/consistent income sources.
Total all income for 3 months = $9,000.00
Total all expenses for 3 months = $7,500.00
Divide these numbers by 3 to calculate you monthly average net income and expenses
Income = $9,000.00 ÷ 3 = $3,000.00
Expenses = $7,500.00 ÷ 3 = $2,500.00
This gives you a positive $500.00 at the end of the month.
Great job, you just framed out your first budget.
4. “Show Me The Money“
Now you need to track spending against income through the months moving forward. There are great online tools for tracking your spending against your income every day.
Using tools like Everydollar, Nerdwallet, or Mint will help out a ton. They are all free and easy to use. Also, they have mobile versions to connect you to your budget on the fly. Intuit’s Quicken will cost you a monthly fee, but it has been around for years and has interfacing components for you to export reports to your accountant for year end taxes, and they have a connection with their Turbotax product which as automated calculations for your best tax filing without an accountant, and they recently added Turbotaxlive with real CPAs to help you prep your taxes.
In the end it’s your choice how you manage your budget and file your taxes. Our goal at My Real Estate Advisor Team is to guide you on your real estate journey. We have networked with financial planners, CPAs, accountants, and other financial/investment professionals to assist you in making your own successful decisions that will effect your real estate story.
Reach out to us via phone, email, or send us a text with your budgeting questions, and we will work hard to connect you with the right people to build your personal team of advisors so your financial future will be sound. We are not financial advisors, we are all in the deep end of real estate sales, purchasing, and leasing. But, we can help you build the best advisory team so you can feel confident making the right real estate decisions for your future.
