Simpleimage javascript7/14/2023 These two utilities do not cost me the same every month, so I lump them together in one category and make sure I give enough to that category to cover both. ![]() On the other hand, my electricity cost increases tremendously over the summer with AC, and my propane (heating) cost increases massively in the winter. I know how much I need each month to cover them, so I just give them their own categories. This same rule applies to phone and auto insurance expenses. Our usage doesn’t fluctuate much, so I have that as its own category. Water almost always costs me the same amount every month. If you’re nearly certain of how much something will cost you, give it its own category. This separation illustrates a general rule that I think works well for budget categories. First, you may wonder why I separate out water and utilities. Here are some examples:Īgain, these are not all of my categories. The number of categories you need depends on a lot of factors. That’s right, all your spending is going to fit in some category. But what do we do when we get that number? Step 2) Categorize Your Expensesįor a good budget, the next thing you’re going to have to do is make categories that describe everything you spend money on. Ultimately, if you have irregular pay, it will be important to make sure you have some savings on hand to cover you when you have a smaller pay period. I recommend trying to take an average of your last few paychecks so long as one of them isn’t extremely abnormal. You’re going to have to make a guess on the number of hours you’re going to work. If you work for a wage at a job with irregular hours, things are tougher. In that case, you can just use the amount on your bi-weekly paycheck. You might want to keep track of your budget on a biweekly basis. Situations and preferences vary, of course. ![]() So I take the dollar amount I get on my paycheck after taxes, multiply it by 26 to get my annual income after taxes and other deductions are removed, then I divide that number by 12 to get my average monthly income. Since there are 52 weeks in the year, getting paid every other week means I get 26 paychecks. The issue is, I get paid every other week rather than monthly, so I have to do some math. So can this be fixed? Well, for me, keeping track of my income on a monthly basis is best. Some of it is going to Uncle Sam rather than your budget, and likely to state and local government as well. So if your salary is $100,000 a year, you’re not going to get all that money. Second, your yearly salary number is likely not adjusted for taxes. ![]() You can’t just assume you have access to your whole salary when you plan your expenses for the month. Why? Two reasons.įirst, unless your boss is really cool, you don’t get your entire salary paid to you on January 1st. But just knowing the number associated with your yearly salary or wages is not enough. That means you’re going to have to know your income. Your budget requires you to compare your income to your expenses. I’m just describing a method you can use to make a budget, and some ways of thinking someone may find helpful. Please note, none of this is financial advice. ![]() So with that I present a simple guide for making a budget. But, in my time in business school and my own life, I have picked up a trick or two relating to money management. So, as an economist, I won’t be planning your retirement anytime soon. The key difference is that while economics studies exchange and the institutions under which exchange takes place, finance deals more with the practical study of managing money and other assets. Many economics professors will attest that this leads to us getting several questions about financial planning. One of the common mistakes people make is thinking that economics is the same thing as finance.
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