When finally doing a budget, people get all fired up at first.
They understand what categories go where. What categories are for cash envelopes and what are for the checking account.
They understand their equity and debt positions. And they understand how much money is coming in every month.
Essentially, they finally get it. Some are overwhelmed , some are encouraged….sometimes it’s a combination of both. But they get it.
The problem is what happens once they walk out the door from a coaching session.
They sometimes get stuck and become frustrated with the process. A lot of it is overcoming the behavior changes.
But the missing piece of the puzzle is the planning of their paychecks and bills for the following month.
So how do we do that?
- Grab a pencil and a pad.
- Write on the left side, the dates of when your net paycheck comes in (ex: 1st, 7th, 14th, 21st, 28th)
- Next, write the “net” (what you bring home) amounts of each paycheck to the right of each corresponding dates.
- Then list all of the payments to the right of the income for that month…… starting from the ones that are dues first (earliest to latest). Example: $600 mortgage on the 1st, $100 electricity on the 3rd, $50 for the Internet due on the 5th, …….so on
- Go down the list and map out the month. Let’s say you make $1000 on the 1st of the month. Using the example from the previous bullet point, $600 goes to your mortgage, $100 goes to electricity, $50 goes to the internet. That leaves us with with $250 left over that will get applied to the next set of bills coming due.
- You will then use the $250 and start planning for the next set of bills coming due that month. Once your next paycheck comes in on the 7th, you will use the $250 plus the new paycheck and continue down the list of bills.
- Irregular income: List the most important bills to the least and go down the list. Keep in mind the 4 Walls: shelter, food, transportation and clothing. These are top priority and once you cover these go down your list from most important to least important.
- Disclaimer: If you can not make a payment, analyze your budget. Do you earn enough money? Spending too much? What changes do you need to make?What can you cut out? Where can you save? Behavior changes are 90% of the solution.
By focusing on the budget and mapping out your month, you have a great chance of avoiding “Black Hole” when it comes to your finances.