Financial Freedom in 2021! Take Action: Day 5
After completing your annual budget yesterday, you should have an amount remaining between your net income and your fixed/priority expenses. If there is not a livable amount (for the year) leftover, some of those priorities may have to have deadlines that extend into later years or may need to be removed temporarily.
In the example shown yesterday, there was $20,420 remaining for monthly spending. That comes out to approximately $1,700/month, which may seem minimal if you are raising a family. However, keep in mind that this does not include major living and transportation expenses, monthly savings, investment contributions, or amounts budgeted for other top priorities. Therefore, the amount *leftover* is for variable expenses of food, gas, utilities, entertainment, electronics, clothing, gifts, and extracurriculars. It may still present a challenge, but that’s what we’re here for, right?
You can use the same “Personal Budget” spreadsheet or any budgeting app to set up your monthly budget with the amount you’ve calculated from your annual budget cash balance. Divide the total by 12 and set that as your “income” for the month in your budget. Then, estimate how much you will spend in each of the categories listed in the paragraph above. Practice zero-based budgeting to the best of your abilities.
After establishing your monthly budget, plan to track your spending via your bank app or receipts and then give yourself some grace. It may take a few months to get the estimates correct, and you may encounter some setbacks. The good news is that setbacks don’t actually set you back financially if you’ve been saving for emergencies and if you are committed to getting on track the following month. Once you have a system for monthly budgeting, you can become an expert in a matter of a few months, and this process will take less and less time.
One thing we try to do with regards to monthly budgeting is to start the following month indebted to the previous one IF we over-spent in variable spending categories, but we also pay ourselves the surplus (in the next month’s planning) if we come in under-budget for a month.
This budgeting process has become a fun ritual for my husband and me because we turn our discussions into monthly money dates! It can actually be fun. 😉