Piney Woods Homeschool

When you budget based on your annual income and expenses, using an "envelope system" can work to your advantage. You have probably heard about people putting money into envelopes to put that money aside for different types of expenses. You might have an envelope for clothing or one for groceries, for instance. When a paycheck comes in, certain amounts are allotted to go in each of the envelopes. Then those expenses are paid from that amount. Using a system like this lets you consider your whole year when you budget while still managing your money month by month or paycheck by paycheck. Putting certain amounts of cash into designated envelopes throughout the year allows you to plan for future needs while still meeting your immediate obligations. If you budgeted for annual expenses that are flexible or unscheduled or infrequent (haircuts that are less often than monthly, clothing, gifts, car maintenance, vehicle registration, and other similar types of expenses),...

Why should you base your budget on your annual pay rather than budgeting around each individual paycheck or month? Many expenses are weekly or monthly, and it seems reasonable to manage those based on your individual paychecks or each month. Then for the expenses that are infrequent or not scheduled, you pay out of the surplus of each paycheck or each month's pay. When you do that, it's hard to plan for expenses that come less often but are fully foreseeable. Also, when you budget based on a short period of time, it's hard to save for those expenses that can be expected but can't be known in advance. Examples: Vehicle registration comes only once per year, but you know exactly when to expect it and how much it will cost. This is a fully foreseeable expense that isn't monthly. Christmas and birthday gifts and celebrations each come once per year at times that are known in advance. You get to choose how much you spend on them, but you can plan that...

When you have a realistic list of income and expenses that has income higher than expenses, you next need to allocate that extra income. It's tempting to use that extra money for spending on things you want to do but haven't budgeted for. In a way, that's what we're going to do, but not as free money. You need to have a nest egg, some money put away for emergencies. To start with, you need to get $1000 put away that can be used to cover those totally unexpected expenses like a plumbing repair or bail.  :-) Some of you will say, "That's easy! Already have that!" Those people can read on after this paragraph. Some of you will say, "That's impossible!" No, it's hard but not impossible. It requires you to take every dollar you can scrape together and put it aside in a safe place and not touch it except when you have an actual emergency. It means you have to do without some things you would really like to have. But it *can* be done,...

When you completed Step 5, you had an estimate of your annual income and outflow, how much money you bring in and how much goes back out again. If your income was higher than your estimated spending, things look pretty good. But check your estimates. Did you forget a category? Did you estimate too low?  Did you include expenses you know will occur but not exactly when or for how much, like car repairs (make an estimate for the year, even just a few hundred dollars) or school supplies? If your income was lower than your expenses, that's not surprising. Now we need to fix that! One way to fix that is to look at those discretionary or variable expenses and see if they can be reduced. But don't be unrealistic! You can't budget $20 a year for clothing for a family of 5 unless you are a super thrifty clothes shopper who receives lots of hand-me-downs.  Another way to get your spending in line with your income is to look at some of the bills we listed to see if ...

Now we add up our numbers, all the amounts we put into our flexible categories plus the amounts we previously listed for regular bills and known expenses. Make sure you are adding up numbers for the same time frame! I think it's easiest to do this initially based on annual numbers, so if you have a monthly number, multiply it by 12 first. Weekly numbers get multiplied by 52, etc. If you're using my spreadsheet as a template, the numbers should already have added up automatically.  Now is a good time to check the math and make sure all the numbers are adding correctly.  If they are not, you'll have to troubleshoot the formulas on the spreadsheet. When you have added all of these up, you have a rough idea of your annual spending. How does it compare to the annual income we calculated long, long ago? If your annual spending number is smaller than your annual income, you have a surplus that you can save. If it's bigger than your annual income, you have a def...

We've figured out how much we have coming in, and we've recorded all our regular bills that we're committed to spending. Now sit down and think about what else you spend money on regularly. Just make a list of everything you can think of. Don't include monetary amounts, just the label. - clothes - groceries - eating out - gas - auto repairs - school supplies - Christmas gifts etc. You can see some items on the spreadsheet I showed you , just as examples.  You can add your own in place of mine or in addition to mine, if you're using that spreadsheet. Let's put some numbers into the categories you listed. For some things, you can make a rough estimate. For instance, how often do you fill up your vehicle's tank with gas, in general? How much does that roughly cost? Multiply that out for the year, and put that number down for fuel (or whatever category you are keeping that in). How many people do you buy Christmas presents for?  How mu...

Find every recurring bill you have.  * If the amount is the same each time you pay, then one copy of that bill will do.  Car payments, mortgage payments, and phone bills often are the same each month. * If the amount varies, gather several copies, ideally a year's worth.  Utility bills, especially electricity or gas, often vary from month to month. Take that stack of bills and sort it. Bills that are the same every month go in one stack. Bills that change each month go in another. We're going to list these bills on our budget. If the bill is the same every month, list that item and put the amount in the column for monthly expenses. If the bill changes, take all of the examples you've collected, add up the amounts, and divide by the number you have. That will give you an average amount. List the bill on your budget and put that average in the monthly expense spot. If you have bills that are more frequent than monthly or less frequent than monthly, you can ...

Now that we've gathered pay stubs or records and we've recorded gross pay over a period of time, let's see where the net pay amount comes from. Look at your pay stubs over a full month, a recent month. Amounts deducted may not be the same for each pay period! Make a list of what items are deducted from the pay and how much. Do that for each of the pay stubs. Some items are a fixed amount, like insurance. Some vary based on the amount of pay, like taxes. *If* your gross pay is consistent, the same each pay period, then for variable items you can just use the amount from one check for your budget. *If* you have a consistent base pay or your pay is variable, then use the amount from your base pay or the lowest check from the last couple of years (the gross pay you're using to budget from). If you aren't sure what to put for the deductions, you can work off of your net pay (the pay you receive after deductions are withheld) or you can make your best estimat...

Think about your sources of income. Where does the money come from? How often? Here's an article that helps clarify , especially if you have a more complicated situation such as a variable income. Don't figure your income on a monthly basis unless you get paid once a month. Figure it based on the pay period you actually have. If your pay is variable, do look back to find your smallest check over the last two years, but also try to get an average amount for the last couple of years. Both pieces of information can be helpful in planning. This is gross income, not net. Don't deduct taxes or other items that probably are withheld from your check. Ultimately we will be planning based on annual income, so keep that in mind. Have you collected some paystubs? (These are probably stored online somewhere. That's good, because once you find that "somewhere" you can easily review a series of paystubs.) Start with either an exact figure, exactly how much i...

Money matters.  When money comes in, we can spend it however seems best at the time, but unless we make a plan ahead of time we'll never be able to accomplish longterm goals with it or make sure that our important priorities are taken care of. Budgeting is not a mysterious process.  There's no one right way to do it, either.  I am going to describe what I do, simply because it's what I know best and because I think it works or I wouldn't keep doing it.  Mostly I think it's critical to know what comes in and goes out, to plan for future needs, to focus on the most important priorities, and to set reasonable limits.  Then money becomes a tool, not a master. Step 1 - Income Step 2 - Deductions Step 3 - Bills Step 4 - Other Expenses Step 5 - Total Expenses Step 6 - Adjusting Step 7 - Allocating the Surplus (Margin) Step 8 - Big Picture Step 9 - Envelopes