1. Take an inventory of all your assets
This will include if you own a car or a house, any savings, CD’s, retirement (like IRA’s and 401K’s), or checking accounts and any other money you might have stuffed under your mattress. A website like Mint.com can be a valuable tool in taking a full inventory of what your assets are. This step is more for you to know where you stand financially and is a good indicator if you need to work on your financial habits or not.
2. Calculate your liquid
Once you have all your assets down you need to separate out just the money that you can actually get a hold of. This is called your Liquid Assets. If you have money tied up in a CD, retirement, or in your home DO NOT COUNT THIS MONEY.
3. Calculate your monthly income.
If you have a job calculate your monthly salary.
If you're currently unemployed use your total Liquid Assets and divide it by how many months until your next job. If you don’t know when that is coming divide it by 6 just to be safe. If your number is so low that dividing it by anything other than 1 seems ridiculous get a day job.
4. Write down your monthly expenses
Write down all of your non-negotiable expenses first. For example rent, car payments, student loan payments, bus pass, savings…
In a separate category write down all the payments that are semi-malleable like phone (could you find a cheaper plan?), cable (do you really need TV?)…
Last write down all the things that you spend money on outside these categories like food, eating out, toiletries…
Now that you have these categories put them in a list and assign each one an amount. The non-negotiable will have already set amounts but things like food and eating out can be flexible.
*Separate out your everyday grocery store food from your eating out at a café or restaurant food.
5. Add it all up
Add all the amounts from your list of monthly expenses and see how it compares to the number you came up with in step 3 or your monthly income.
How well did you do…
6. Make it work
The next part is the hard part. If the two numbers are way off and how much you have a month is far less than how much you spend a month it means you need to get a job or reduce the amount of months you want this money to last. If the two numbers are off in the same way but it’s your monthly income you might want to think about getting a second job. With both these issues you can also adjust your budget as so…
*If what you take in a month is greatly out numbering the amount you spend Congratulations! Put more toward savings until you have an 8-month cushion set up and then see where you can treat yourself each month.
When your budget doesn’t fit, the first place to look is at the semi-malleable items. Do you really need the all inclusive data plan, can you live with simply the internet instead of TV too or even more extreme can you go in internet cafes instead of having the internet. Once these are dealt with then you have to cut back on the non-essential items like going out! You can waste almost 300 a month going out and buying lunch, breakfast, and dinner at restaurants. While you don’t want to be a hermit, if you're more conscious about what you spend while going out you will greatly reduce the amount you spend.
Last always save. Even if you are saving $10 a month do it because it gets you in a habit that will serve you for the rest of your life!
Below is an example budget.
EXAMPLE BUDGET
Total monthly income: $2000
Item Amount
Rent $750
Savings $100
Health Insurance $200
Student Loans $200
Food $150
MTA Subway Pass $116
Eat Out $60
Gym $69
Extras $75
Theatre Ticket $50
Utilities $100
Toiletries $30
Phone Bill $80
Dental Insurance $12
Net Flix $8
Total $2000
Share This Article
