The trick to being successful with a budget is using a system that you can commit to.  The most expensive and sophisticated system will be nothing more than a waste of money unless you diligently use it.  I have a background in computers so I tried several types of money management software, but it wasn’t until I created a simple Excel spreadsheet that I found myself being consistent and able to track my spending over a long period of time.  Don’t be afraid to try different systems.  If one doesn’t work, move onto the next!

Do you need a budget?

The short answer is yes!  It is my personal opinion that everyone needs a budget to track where their money is going.  If you find yourself with not enough “money at the end of the month” then a budget will allow you to see where your money is going and where cuts can be made to increase your cash flow.

Budgets aren’t just for those with a negative cash flow.   In fact, budgeting is an act of financial discipline and awareness that when implemented properly can help you reach your financial goals.   

Starting a budget

• Set aside a date and time to get started.  This should be sooner rather than later.  Set aside a date and time within the next 2 weeks to get started.   Decide which budgeting system you are going to use:  spreadsheet, budgeting software, envelop system etc.
• Collect your bank statements from the past 3 months, document your income and expenses.  This will help you project your budget for the current month.

List all income & expenses

When starting a budget you want to include all income.  This includes employment, child support, alimony, and side jobs.

Listing expenses are a little trickier.  This is why the past 3 months of bank statements will help you to see where your money is going.  Here are some categories to guide you:

• Tithes &  Offering
• Mortgage or Rent
• Uilities
  • Electric
  • Gas
  • Water, Trash, Sewage
  • Phone
• Food \ Groceries (include money spent eating out)
• Car
• Insurance
• Gas
• Debts
  • Credit, Loans, etc.
• Savings
• Emergency fund
• House Maintenance fund
• Car Maintenance fund
• Retirement savings
• College savings
• Holiday & Birthday Budget
• Investments
• Cable
• Beauty budget
  • Hair, nails, etc
• Discretionary spending & Entertainment

Next to each item, write down the amount you plan on spending in that area.  Use the average spending from your last 3 bank statements.  The sum of these items is your total expenses.  Hopefully, this number is less than your total income.  If so, you have a monthly surplus.  That is a great place to be, because it leaves you with options.   You can sweep all leftover monies to savings, investments or charitable contributions or you can increase your discretionary spending.

However, if you find your expenses meet or exceed your income.  You are living in a monthly deficit.  You’ll need to find areas that you can decrease your spending or earn more income.  This may be an uncomfortable position, but having a budget in front of you allows you to visualize the problem and work on a solution.

What about you?  Do you budget?  Do you like to budget?  What system do you use?

Lakita Humber Lakita is an IT Systems Administrator by profession with a passion for the things of God, worship arts, and financial stewardship. She started Personal Finance Journey as a way to help and encourage those on the road to financial freedom. She has been blessed with the opportunity to minister throughout the U.S. and Internationally as a workshop speaker and presenter. Connect with Lakita on Twitter & Facebook.

I suppose irregular income is probably most common in sales oriented or commission based positions, personally owned businesses and seasonal type work.  For many such jobs the income each month varies by how well the business is doing or the time of year.  This is common for real estate sales professionals.

Budgeting with Fixed and Variable Income

Let’s first take a look at a situation in which there is both fixed and variable income.  If you have both fixed and variable income you’ll want to try your best to arrange your budget around the fixed portion because it’s predictable and easy to plan spending. 

Ideally, when the variable income income arrives, it can be used for purposes other than meeting the monthly expenses.  Since all or most of the expenses are hopefully covered with the fixed income, the variable portion can be used for helping you excel in other areas of personal finance.  These areas may include meeting financial goals such as emergency savings, debt reduction or even short – term savings for vacations.  Or, in building a cash reserve (mentioned below).

Certainly, if there is money left over after expenses from the fixed income it can and should be used for these areas too.

Budgeting with Variable Income Only

1.  Relax and prioritize your spending

Relax your spending and expenses as much as possible.  Commission only jobs are some of the most lucrative, but not typically in the beginning.  Your commission will be based on your hard work, networking and learning your product.  Until this time, keep your expenses low! 

Also, it’s important to make a list of your most important expenses as well as estimate your expenses.  If you have a low month and don’t have the cash reserves you’ll need to pay what’s most important first.

2.  Estimate your income

If you’re dependent upon variable income only you’ll want to first do some estimating based on the average of this income.  To budget variable income take your last 12 paychecks (or the best history you can get) and average them to get a starting point.

But, what if you don’t have 12 months of history because you’re starting a new job?  If you don’t have a lot of earnings history talk to people who do.  You might speak to your boss or others in the field and ask them what is reasonable or expected for the first year of your commission only job. 

3.  Refine with conservative estimates

So, now that you know the average or about how much you’ll make you can decide if you want to be a little more conservative with your estimate.  You might consider taking the average and reducing it a little further just to be on the safe side.  Take a look at dropping the number to 10% and see if you can still meet expenses and have money for giving and saving purposes.  If so, you’ll appreciate being on the conservative side when your paycheck is lower certain months.

4.  Create a reserve account

You need a reserve or short-term savings account to draw on to cover expenses for months when your paycheck is less than estimated (perhaps it’s a seasonal sales reason).  Ideally, you’ll want to save up one month’s income to cover such times.  Try using bonuses, tax refunds or extra money to quickly save up your reserve account.

5.  Refine your budget

Once you’ve been moving along for a few months you can determine if changes need to be made.  As with any budget, you need to monitor your spending and determine if you need to cut back in certain areas.  Or, perhaps you have to work a little harder to increase your variable income!

What do you think about these tips for budgeting when variable income is involved?

For those with multiple paychecks, you have to decide which bills get paid with the 1^st paycheck, 2^nd paycheck, etc. This is a common situation for family’s with multiple incomes or for someone who gets more than one paycheck from their job. It’s especially challenging to get started if the finances are disorganized, or if you’ve gotten behind on paying bills which requires paying double (and sometimes more) to get caught up.    But, don’t worry.  You can get things in proper shape with just a few simple steps. 

Steps to allocate your income

The best way to allocate your income is to use a spreadsheet or pencil and paper. Take a look at this income allocation spreadsheet example from Crown Financial Ministries.     

1. List out your bills in the first column. Examples may include the monthly mortgage, electricity, car payment, etc.
2. You won’t see this in the example, but create another column to identify the due date for each bill. You may have to look at statements you’ve received in the mail, or go online to determine the due dates if you don’t know them off-hand. This information is very important, so definitely pick up the phone and call customer service if necessary.
3. In the remaining columns identify which paycheck you‘re going to use to cover each bill . As an example, you could pay your car payment using the second paycheck each month and your mortgage with the first.

Don’t Forget Other Expenses

Determining which paycheck to allocate for bills isn’t as easy as guessing. You have to keep in mind all expenses (not just regular reoccurring bills).    So, make sure you include all your major expenses in the list as well and assign them a paycheck. 

Food is a good example. Let’s say your food budget is $400 per month. You could spend $200 a paycheck on food, or you could set aside $400 out of your first paycheck to fund your food needs for the entire month. In either case, you need to make sure you have enough money to pay regular reoccurring bills too.    You don’t want to be short on money and waiting frantically until the next paycheck arrives. 

Once you have a good understanding of all your expenses, your bill amounts and their due dates, you can determine which income source to use and feel confident you’ll have enough money in your checking account.     

1. Transactions are downloaded from your bank or credit card company so you don’t have to write them down.
2. Deposits can be allocated to different spending categories.
3. Balances are automatically calculated.  You don’t have to do all the adding and subtracting yourself.
4. Software keeps tracking of budget category balances, but also maintains an online account register (as you would keep in your checkbook).
5. Run reports to see spending per category for different time periods.  This is helpful if you want to see how much you’ve spent on food monthly for the last year.
6. Set up bill pay to pay from any account.  No more writing checks!
7. Mobile view of budget and spending.  As with tracking your spending in a pocket book, mobile access allows you to view your balances on your cell phone or mobile device such as an iPhone.
8. Auto assignment rules.  To save even more time you can set up rules to automatically assign transactions for certain payees to an appropriate category.
9. Net worth calculation allows you to see at a glance your net worth considering each of your accounts and other liabilities.
10. Automatically fund envelopes or categories by setting up funding plans.  Once you set up your spending plan you simply auto-fund each spending category when your paycheck deposit is downloaded from the bank.

There are a lot of personal budget tracking software products available today.  I haven’t come across any so far I like as well as how Mvelopes Personal helps with the budgeting aspect of personal finance.  However, I’m a believer of finding software that fits your needs and preferences the best.  In fact, I’ll also take this opportunity to mention Mint which is the most popular personal finance software available.  While I don’t use Mint right today, I have heard many great things about it.  For one, it’s free.   It also has an appealing and easy to use interface.  I prefer the online envelope style to maintaining our personal budget and tracking spending, but Mint also has a budget feature that is worth reviewing if you’re considering multiple products.

No matter your choice, budget tracking software helps save time, improve accuracy and can help you learn more about your spending characteristics (good or bad) to became a better steward of your finances.

What budget tracking software do you use?  What do you think are some of the benefits of budgeting tracking software?

Truthfully, no one should spend money on any vacation (big or small) if they can’t afford to do so.  If you don’t have the money to pay for the vacation and decide to take one anyway you could be faced with months of debt to clean up.  A vacation should be viewed as an investment as long as it is financial responsible.  A vacation reaps many benefits that can positively impact your health, work and relationships. 

Vacation Affordability

Considering financial responsibility, how do you determine if you can afford a vacation?

Well, like most big expenses a vacation involves planning ahead and saving money.  It could involve using a bonus from work or even a tax return.  But, if your vacation requires it to be funded by a credit card you’re in trouble before you go.  Use the one month rule when deciding.  If you can’t pay off the vacation by the end of the next month you’re overspending, or taking a vacation you can’t afford.

You’ve chose a vacation that’s too big for your wallet if you’re stressing over money each day.  To avoid this stress, consider the costs of your vacation in advance.  Don’t just save a certain amount of money without considering costs such as transportation, food and entertainment.  You should plan ahead to know how much it will cost for each of these areas and develop a specific spending plan for each day.

Did you just say – I deserve a vacation given my hard work and all my stresses in life?  Thing again!  Chance are you certainly could use a break and perhaps a reward of down-time, but don’t let feelings determine vacation affordability.  You only deserve it if you can afford it. 

Can you still make traction on your financial plan if you go on vacation?  Consider the impacts.  Would going on vacation stop your debt pay off plan or considerably delay it for significan amount of time?  Would it drain your savings?  While considering debt, savings and other goals differs for everyone, make sure you can still make forward progress on the road to financial freedom if you decide to spend money on a vacation. 

Investing in a Vacation

Again, for a vacation to be an investment financial responsibility must exist.  Otherwise, all the health benefits you got while on vacation will quickly be washed away by the stresses of paying off your vacation.  You can truly enjoy the many benefits of a vacation once you’ve saved and created a spending plan for it.   Consider the below benefits of a vacation investment.

A vacation can refresh you.   We all need a break from our daily routines which can be demotivating at times.  A vacation helps refresh, renew and provide new found motivation and appreciation for your work.  This only works when you can completely unplug from work.  As an aside, I never understood working vacations.  Unplug from work and let the vacation serve its purpose!

A vacation helps you remember the most important things in life.  While many of us know our priority list, we sometimes fall out of line with it and don’t invest the time we should in our faith, family and relationships.  Spending time on vacation can bring these priorities back into the right perspective when you return.  A vacation is sort of like a chance to regear and start over.

Do you ever find yourself getting wound up be the daily stresses of life?  We all know they aren’t that important in the grand scheme of things.  Yet, they still tend to get the best of us.  I love how vacations can help us put these stressors into proper perspective.  A vacation simply helps in letting go and setting down the weight you’ve been carrying around.

So, will you spend money on a vacation this year?  Big or small, a vacation is worth the investment if you’re financially responsible.

Personally, I was far from having a good understanding of personal money management, the importance of savings and avoiding debt right after college.  Although I made some financial mistakes, I can share some tips today in the hope you won’t do the same. 

10 Tips for Your Financial Life After College

Don’t finance a new car

Most graduates are excited to get a new job and decent salary after all their hard work in school.  But many of them look around and see the new cars their friends have just purchased and immediately feel they deserve the same.  You don’t unless you can pay cash.  You may be driving the car you had in college (if you were lucky to have one) for a while, but avoid financing a new car.  Financing a new car will put you in debt for more than $300 per month and you’ll live with that debt anywhere from 4-6 years.  It’s not worth it.  Rather, begin paying yourself a car payment and save the money until you can buy a good and reliable used car.

Don’t spend more on a credit card than you can pay off each month

Perhaps you already have a credit card, or are thinking of getting one.  A credit card can be good to use in certain situations.  But, make sure you don’t carry-over a balance at the end of each month.  While this may not make much of a difference at first, a hundred dollar balance will eventually turn into several hundred and then a thousand or more.  It happens to many people because using a credit card is so easy to do.  Only spend when you know you have the money for it.

Get on a plan to get out of debt

Speaking of credit cards, did you have one in college?  Chances are you may have some credit card debt and student loans to pay off.  Make sure you have a plan to start paying extra to get out debt as soon as possible.  Once you’re debt free, you can begin to save more of your income for future purchases such as a car and home.

Live on a budget 

Now that you’re earning money, you have to learn to manage money.  The best way to do that is by living on a spending plan, or budget each month.  Create a budget and track your expenses immediately. Personally, I like using a hybrid of the envelope budgeting system where you pay cash for areas such as entertainment and clothing, but use credit or debit for other areas.  

Don’t be too picky about your first job

Hey graduate, did you work hard in school and make good grades?  Congratulations if you did, but don’t be too confident and think you deserve everything the professional world has to offer the day after graduation.  Rather, focus on getting experience before pay.  Chances are your expenses will be minimal after school and you can work for less, but learn a lot about yourself and your future profession.  All this being said, don’t jump at the first opportunity out of school either.  Make sure the position is the right fit for you as well as the company.

Read the Total Money Makeover by Dave Ramsey

I know there are a lot of good personal finance books out there, but the one I probably enjoyed the most that got me even more motivated to get out of debt was Dave Ramsey’s Total Money Makeover.  It’s filled with great practical tips and will help you set your priorities straight.

Set aside a portion to give each month

Money is a powerful thing and we can’t control that power on our own.  If you’re a Christian, I recommend giving from your first pay each month to release the financial bondage money can have on you.  If you learn to give money first you can truly appreciate money as a resource that only comes from God which is your job to manage.

Rent a modest apartment

Are you starting to understand the theme here in this article?  Live modestly and get your finances heading in the right direction before you make a move to a nicer car or buy a home.  Try to find a safe,  but easily affordable apartment you can call home for the first few years.  Earn, give, save and get out of debt in these years and then consider buying a home when it’s affordable and you can make a 20% down payment.

Create a 5 year financial plan

On top of these tips you’ll want to set some goals for yourself.  I would advise doing this after you’ve been out of school and working for a few months.  Setting a five year financial plan can be encouraging because you have some real goals you can accomplish in a short amount of time.  It will also help drive your spending behaviour each month.

Set some money aside in a savings account

As a part of your monthly spending plan you’ll want to carve out at least 5% for savings until you have $1000 put back.  Then, stop saving and pay off any credit cards using that 5% plus any extra you can afford to put on them.  Once completed, you should build up a full month’s of living expenses in savings and then start tackling other forms of debt.  You can get some of the best yields available for your savings by using an online savings account.

Finally, put all these tips together in one big plan by following the Crown Money Map.  The Money Map has been a blessing for many and if you start following it in your life right after college you’ll be miles ahead of so many who have traveled these roads before you.

What do you think about these 10 tips for your financial life after college?

PErsonal cash flow management, managing what’s coming in and what’s going out, is critical to maintaining control of your spending and staying in financial balance. Some people manage it to extreme detail and others manage it up to the high level. Either way, it’s cash flow management and it’s our jobs as wise money managers to exercise it often.

Reflecting back on what I’ve seen work well; I thought I’d share some cash flow management tips that can make all the difference in the world to living within your means and making progress, month by month, towards your financial goals.

It’s a daily exercise. Performing good cash flow management and staying in financial shape requires a daily exercise routine. Not matter how you track money going out, coming in and balancing each expense with your checking account, you need to find time to do it daily. The daily exercise just takes a few minutes to review receipts and either writing the amounts in your tracking form, or inputting into your personal finance software. If you’re tracking manually you can capture your expenses at the point of sale.

You need to know where you’re at today. At any point in time, you should no how much money is in your account and be able to quickly determine how much money is left for each spending category. How do you have this information at your finger tips? If you track manually, you can keep the balances in a pocket book. If online, you can view category balances through mobile interfaces (or on via the web) available with most major applications. Either way, you can quickly determine how much money is left in the grocery category.

Determine what works best for you. There are a lot of cash flow management tools. I’ve had experience using software and paper tracking forms. Software can save time, but there is something about tracking money by writing it down that allows you intimacy with your financial situation. I once had someone tell me they felt like they were on a Weight Watchers diet when writing down expenses manually. The more they had to write down their expenses the less they wanted to spend. The point is to find what works best for you and implement the tool into your routine.

You can’t guess your way through it. Don’t try to keep track of your spending decisions or actual expenses in your head. I don’t know anyone that can successfully do this for their entire budget. Don’t try. You’ll eventually make a mistake or never really be able to determine where your money is going each month. Trying to manage in your head or via the summary balance in online banking won’t give you the measuring stick needed against a monthly spending plan.

It’s typically an eye opening experience. If you’re convinced you need to track your spending, you can save money. It’s easy to go back at the end of the month and add up all the times you went out to eat or determine how much you’ve spent on cable TV in the last year. Having this information will enlighten you to your spending habits. And some of your spending habits may frighten you once you can go back and look at them. Cash flow management provides a great opportunity to curtail careless spending and keep discretionary spending under control.

It’s a routine thing. If you’ve ever gotten into the habit of a regular exercise routine you’ll appreciate where I’m coming from with this one. Once you’re in a regular routine and miss a day or two, you feel empty. You feel like you’ve lost something that you have to gain back by getting into the gym again. When you manage your money, it’s the same feeling. Eventually, it will become natural and if you skip a day of managing your expenses or don’t plan your spending for the next month, you’ll feel like you’re getting out of financial shape.

It requires commitment. I think it’s too easy to say “I need to start tracking my money or managing spending better”, but too many times people talk about it and don’t do anything about it. You have to be about it! There is a reason why people who commit to managing their money avoid debt. As a money coach, I’ve never worked with anyone who was diligent and committed to their finances and kept spending carelessly. The two just don’t go together. If we’re committed to managing our money, we are also typically committed to spending wisely and using a spending plan.

Closing Thought – It’s not easy, but everyone can do it. As with most things in life that have big reward and pay off, it’s not easy. We can all add and subtract. That’s easy and the fundamental skill required. However, what’s not easy sometimes is going a little bit outside the norm.

I’m willing to bet the majority of the population doesn’t read 15 minutes a day. I don’t have any solid facts; it’s just a theory. If you’ll roll with my theory I think you would find reading 15 minutes a day would put you well in advance of the average in terms of information and knowledge you posses.

And so goes the same, in my opinion, with personal cash flow management. Why not do an out of the norm thing and practice just 15 minutes of managing your money each day? My theory, if you choose to believe it, will bring your finances in order, balance, and onto the path of debt free day.

What’ the best way you’ve found to manage what’s coming in and what’s going out?

The most important thing to remember is to plan or budget your vacation spending.  If you have a plan, your chances of over spending, or spending outside of what you can afford, will greatly decrease.  And there’s nothing worse than experiencing spending anxiety while you’re supposed to be relaxing and having fun.   Establishing a spending budget will bring you some peace of mind during your vacation.

So, here are some tips to get you started in budgeting and spending wisely on this summer’s vacation.

6 vacation budgeting & spending tips

Plan a summer vacation on a budget

As I mentioned, the most important part to managing your summer spending is to have a budget, or spending plan.  It’s important to know what you can afford before deciding what you’ll be doing for your vacation.  Set your limit and agree to that limit with your spouse (if married) well in advance of beginning your vacation.   Not everyone can afford a family vacation to a far away island with aqua blue water.  And that’s okay.  The important thing is to be content.  Vacations are about getting the rest you need and having some fun.

Subdivide your spending into categories

If you’re used to using a monthly budget why not create the same thing for your vacation?  You can divide your overall budget or spending limit by categories such as transportation, food, entertainment and extra spending money.   If you know what you want to spend for airplane tickets, or gas (if driving) this may help in determining your destination.  You wouldn’t want to spend 70% of your budget on transportation to be left with very little entertainment money while at your destination.

Reduce expenses

Just like you would with a family budget, look over the categories of your summer vacation and determine where you can widdle away at costs.  Do you really need that much money for entertainment each day?  This is where you can begin researching to find coupons, identify alternative sources of entertainment and use creative ideas (as with the next tip).  Check lodging specials for Hotels and know when they run.  If you’re flexible on travel dates you can reduce transportation and hoteling vacation costs greatly.  The point being, get creative and put some time into researching how you can reduce your expenses.

Make your money go further by spending smart

While on vacation remember you don’t have to have to go out to the most expensive restaurants, or even eat out every single meal.  Many times we have planned to eat groceries for breakfast and lunch and eat out at a restaurant for dinner.  This saves a considerable amount of money considering most hotel and vacation area restaurants are quite pricey.  There is nothing wrong with having a styrofoam ice chest with food in the corner of the hotel room. 

Use cash when you can

Although it might not be wise to travel with a lot of cash, I like the idea of using cash while at your destination.  Consider going to a bank once you arrive at your destination and take out cash.  Put the money in envelopes and use that money according to your daily plan.  It’s sort of your like you’ve paid each day in advance and you don’t have to worry about tracking spending for credit or debt transactions.  Just make sure you find a safe place for the cash such as in a safe.  If security is a concern you might try to use a convenient ATM each day.  Most major Hotels have them today.

Establish a vacation allowance for family members

After all, it is vacation, so you get to take a little bit of a financial management vacation too, right?  Consider giving each family member a daily allowance for spending.  They can manage their own spending envelopes depending on how they want to divide up the money for purchases.  Of course, children need additional guidance, but mom and dad can manage their spending allowance, or blow money in this way.  For example, let’s say that our blow money allowance allows for my wife and I to each have $25 for the day (just throwing out a number).  At the beginning of the week, or day we each get our $25 to manage and spend as we please.  There is little for the money manager to do now and your spouse or family member can enjoy some freedom in spending as they please.

What are your tips for a financially wise, or spending smart vacation?

1.  Make sure you have some method for tracking personal spending (don’t try to keep it in your head). 

2.  Track personal spending often (daily or every few days).

3.  Don’t over budget with too many subcategories because it makes tracking personal spending too complicated.

All that being said, there must be some good tips out there that can make the process less time consuming.

What tips do you have for tracking personal spending?  What have you found that makes this financial management task more efficient?

Now it is required that those who have been given a trust must prove faithful. 1 Corinthians 4:2 (NIV)

Helping others

Final thoughts

The important thing to keep in mind is we should be good stewards of even the smallest of resources.  If we go back to scripture, God is the owner of all things.

Yours, O LORD, is the greatness and the power and the glory and the majesty and the splendor, for everything in heaven and earth is yours. Yours, O LORD, is the kingdom; you are exalted as head over all. 1 Chronicles 29:11 (NIV)

So, even in the smallest examples, it’s up to us to be wise managers of these resources.  Doing so, fulfills our responsibilities, but also sets an example for others to follow.

Can you think of other uncommon examples financial stewardship?  If so, please share them with us in the comments.