Most people know what bills they have and when they’re due. What they don’t know is how much money they can spend from paycheck to paycheck. This will show you how to have enough money available to pay your bills and how much you have to live off of.
Information you need to gather:
- Mark down your average take home pay per month?
- List your monthly bills and the minimum or average payment you have to make each month. i.e. gas, electric, credit cards, doctor bills…. Do not list stuff like food, clothing, entertainment. Those are optional expenses. We’ll call this monthly bills. Add in how much you would like to pay the IRS each month.
- List amounts of other bills i.e. car insurance, home insurance, dental bills stuff like that. These are bills that you pay on occasion throughout the year. Also list when the next bill comes due and how often you have to pay them. I’ll refer to them as periodic.
- Make a guess on what you may spend on a vacation in the next year. How much are you planning to spend for Christmas? What month would you like to go on vacation?
How to create your budget:
- Add up your total monthly bills and mark that down.
- Take each periodic bill amount and divide it by the number of months until the next payment is due. i.e. if your car insurance is $360 every 6 months and your next insurance payment is in September then September is 3 months away. So divide that $360 by 3 months. Add each one of these to your monthly bills.
- Do the same thing for vacation/christmas bills as you did in #2 and add those figures to your monthly total.
After doing this you now know how much money you need to save each month to pay bills. If you saved this amount each month you would never be short on money to pay those bills. - Now subtract you total monthly bill amount from your income.
You now know how much you have to spend each month for food, clothing, gas and all your other incidental and personal expenses. - Divide that amount by 4.2 i.e. there are 4.2 weeks to a month.
You now know how much money you’re able to spend each week and still pay your bills. This is your weekly spending money.
How to make it work:
Each week you deposit your paycheck into your checking account this is now your account to pay bills from. From there you transfer your bill paying money money to another checking account and use only for paying bills you have listed….NOTHING ELSE. The money you have left over is for your incidental and personal expenses. It’s the money you have to spend from paycheck to paycheck.
Never take money out of your bill paying account unless it is for paying bills you have on your list.
You will see your bill paying account growing larger. That does not mean you have any extra money. That excess money is to pay for car insurance and any other periodic bills you have coming up.
You’ve now accomplished the ability to set aside enough money to pay your bills and you also will always know exactly what you have to spend on other stuff.