Now that you know where your money is going, you can determine where you want it to go. There are plenty of recommended category percentages available from various sources and though these are good guides you’ll need to make adjustments for what is suitable for your family. For example, for my husband and I the recommended vehicle allowance (including gas) is inadequate because we commute to work, church, and many other places we like to visit. Our housing costs, however, are lower because we live outside the big city. So, make the guidelines your own. To do this I recommend keeping a sheet of averages for certain categories. Some bills and expenses vary month to month and so it can be a challenge to determine precisely what is needed. Therefore, record each month’s amount and then take the average. What’s great about doing it this way is that some months will be less than the average amount giving you an excess that you can use during the months that are higher. This isn’t an excuse to allow it to go higher; this is a safety put in place so that when the heating/cooling bill of mid winter/summer arrive you’re prepared with the excess collected during the milder spring and fall seasons. This average also serves as your bar to be under each month as you explore frugal ways to do so.
|Category Averages Printable|
Now that you have a better idea as to where you’re money needs to go each month, it’s time to assign it to a purpose. Income allocation is taking your total income and dividing it into categories (aka “envelopes"). Write down every category and subcategory you will need. It may be something that is spent on monthly, or it may be something that needs to exist to build so that periodic expenses are covered. The point is to put a purpose to your money so that you can be better prepared to pay (or save!) when that time comes.
Both Crown Financial and Dave Ramsey have their own types of allocation systems. Dave Ramsey uses a cash-based envelopesystem. Crown also uses an envelope system but it’s an electronic version. Both promote the same idea of allocation and budgeting/spending plan. I've used both of these resources, and can highly recommend either of them!
Determining how much to put into a category also depends on when your bills are due and how often you get paid. Don’t play the game of trying to keep up with and send each bill when it’s due. Chances are there will come a time when life gets stressful and the due date slips your mind or something else gets in the way causing you to miss or be late with the payment. Start by writing in order the due dates of your bills. Next, determine which ones fall in between which paychecks. For instance, my husband gets paid twice a month on the 15th and 30th. Therefore, I have one group of bills marked to be due between the 16th-30th that I pay on the 16th. I have another set due the 31st-15th that are paid on the 31st/1st. I have only two moments in the month in which I must pull out the allocation sheet, account sign-ons, checkbook, and stamps. The rest of the time I never have to worry about what’s coming up to be paid or if I’ve paid it. (The other advantage is that you’ll be able to know if you haven’t received a statement for some reason and need to follow up. You should always get a bill, but if something crazy were to happen then you can be the proud responsible party here).
Let’s assume this bimonthly pay frequency I mentioned above to discuss reserving funds to cover everything without ever feeling drained one pay period over another. It may be the case, as it is with ours, that you have just a couple of bills due during one pay period and then everything else due in the other. I’ve seen it many times in which an individual relaxes during the first lighter period and then scrapes by during the second. Again, you know these expenses will occur and so be prepared. Using our bimonthly example, for the paycheck on the 15th you will put half of the amount of the bills due for the month aside, and then the same again on the 30th. For instance, let's say housing payment is $700 a month and due on the first of the month and your paycheck schedule is on the 15th and 30th. So, on the 15th you'll set aside half of the amount ($350). On the 30th, the final portion is set aside ($350) and then the total bill is paid. All required bill payments are handled in this fashion. In doing it this way, you’re spreading everything out instead of playing feast or famine. It’s simply thinking ahead and being prepared.
|Payments Schedule Printable|
Up next we'll discuss Debt (with even more handy forms)
|*Note: I’m not an affiliate of any kind with The Lampo Group, Inc. or Thomas Nelson publishing. These materials were given to me by The Lampo Group,Inc. and it was agreed upon that they may be offered as a giveaway.|
Please feel free to leave any tips you may have in the comment section below. This is simply how I've come to work with finances, but I'd be interested to know of other ways as well. :)
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