Budgeting Basics
Starting a business allows you to create a budget starting with the basics, so make a list of all of the items you will need daily/weekly/monthly/yearly for that business to function. Depending on if you have an online-only business or a business that requires physical space, your necessary expenses will vary.
Here are examples for both avenues to get you started:
Online presence: Website host, domain, credit card processing fees, internet, computer, computer accessories, electricity,
Brick and mortar: Rent, utilities that aren’t included in your rent, parking, office equipment, furniture, office supplies, break room supplies.
Now onto the budget itself. Most people choose to use Excel to track their budget, but I personally like Google Sheets because I can access it from my phone if I need to double check something or make an adjustment on the fly. Google Sheets is also easier to collaborate with team members.
How you setup your budget is personal, I do a traditional header row of what the income/expense is and left column of the month/day it’s to be paid. My income starts the budget in the first column next to the dates, each income source has its own column. I have a divider column before I list the expenses. I have a subtotal cell at the end of each row to reflect Profit and Loss for that time period, to the right of that is what my checking account balance should be for reconciliation purposes, and a Grand Total cell at the bottom of each column for the year to follow what changes happen year-over-year for annual budget updates.
Create a budget
You can not cut-off your money from one month to the next, unless your ‘extra’ money is budgeted and one/two of your expenses is a SAVINGS ACCOUNT for short-falls.
Some of your bills aren’t exactly the same each month, such as utilities. You must budget accordingly: over-estimate by at least 10%.
Have a rolling budget, instead of one-sheet per month/pay-period, to allow your visualization of how your money will factor into your expenditures.
Making Adjustments
If your budget has $191 for monthly utilities, but they sometimes come in around $195, you need to adjust ALL of your utility budgets to the highest they possibly could be. I personally round up to the nearest $10, allowing a cushion.
If you have $7 left for the month that isn’t already allowed to go into savings, add it to your savings budget. This is a necessary ‘expense’ for future emergencies. If you’re unhappy with the money not going toward an expense, think of the times you really could’ve used an extra $5. Now you will have it.
Third Paycheck of the month
If you get paid every other week from your corporate job, you will get paid 26 times in a year, no matter how many weeks fall into a month.
When you setup a monthly budget, your “third” paycheck that month actually pays your expenses for next month.
This is why I have a rolling budget sheet, to flow the money from week to week instead of cutting it off at the end of the month/pay-period.
This isn’t extra money, don’t treat it like a bonus.
Bonus money
If you get a $500 annual bonus, apply it towards your most necessary expense, without adjusting any other money (unless this pays off an expense, then adjust accordingly).
Always choose to use the money that has the maximum benefit. If you need to haven’t had a vacation of any kind in at least three months, consider doing something fun to rejuvenate yourself with a small portion of that bonus money, make a donation to a charity, and make an extra payment to a debt.
Paying off expenses, for good.
If you pay off a credit card, and it’s your last credit card: Congratulations! Now, setup your cell phone bill to autopay from this credit card, and setup your credit card to be paid off in full monthly. Keep this dollar amount on your budget sheet to show you’re spending the cell phone bill money once, in the credit card column, and write “CC” or another wording, in your cell phone column so you know what is paying what.
If you close a credit card, make sure you get written documentation showing it’s closed either via e-mail or USPS. Destroy the card immediately, and unsubscribe from all marketing avenues from that company.
Cash Envelopes
I don’t use cash envelopes, I feel there is a major disconnect from using a strict managerial system so you’re unaware of what’s really going on with your money. I also think money is dirty (it is covered in germs).
I do recommend using a reloadable debit card if you choose this route, mainly because if you’re out grocery shopping and are short $5 you can reload that card on the spot and adjust your budget.
My only caveat to a cash envelope is for ‘fun money’ for an allowance to spend on fun items however you choose. Choosing to spend cash at a local retailer saves them money (no credit card fees), and allows you to tip their service if you’re spending money at a food/coffee establishment.
Revisit your budget at the beginning of each paycheck.
This allows you to see exactly what your take home money is, where those dollars are going, and gives you an opportunity to adjust dollar amounts as you pay off items.
Make note of items that will pay off within a reasonable amount, and choose to pay it off earlier than anticipated as long as you still have a contingency fund.
Perhaps you send an extra $97 to your credit card to pay it off once and for all, but need to send $103 to your savings account instead of $200. The interest rate on your credit card is higher than your savings account, and after this final credit card payment you can now allocate that monthly credit card payment to your savings account.
