So you’ve done the work – you’ve figured out every source of income you have on a regular, monthly basis. Great! (If you haven’t, please read “Know Where Your Money Comes From” before continuing.)
The next step is to know how much you make. You might be rolling your eyes at me right now, because most people have a pretty good grasp on how much they make. You get paid $20 an hour right? So you make $800 a week, right? Well, sort of. You wouldn’t want to budget yourself on $800 a week though.
What you need to do is study your paystub. Take a real good look at it. How much do you have coming out for taxes? For social security? Retirement? Insurance? Flex benefits, if you have them? We can have so many things coming out of our paycheck before we ever even receive that paycheck, and it can greatly reduce the amount we are bringing home. That amount, that you are bringing home, is called your Net Income. The $800 that you make, before they take all of that stuff out, is called your Gross Income.
If you are having trouble making ends meet, you might want to check on what is coming out of your paycheck. Sometimes that can be changed, raising your net income. Take a look at what you are claiming for taxes. Maybe you are claiming too much, and having too much money taken out of your paycheck up front. You could lower that, and have more Net Income.
Of course, on the flip side of that, if you lower it too far, you could pay more taxes at the end of the year. That’s not much fun either. Or, if you claim more than you need to right now, you could get a nice tax refund in April. Claiming more is a nice option for those who struggle to put money in to savings. I look at it as money that is being saved for you during the year, by Uncle Sam, and will be given to you in April. But it is always a gamble, because you never really know if you will have to pay in, break even, or get a refund, until the year is done.
Regardless, check on what you are claiming, and see if you need to adjust this.
Also check on what is coming out for health insurance. Some insurance you just have to have. There is no way to get out of it. And some insurances you don’t need. Do you have the regular company insurance, plus three Aflac Policies? Do you need all of those Aflac Policies? If not, get rid of them.
Could you possibly qualify for medical assistance or a tax break on insurance through the government? Have you applied, to see? If your insurance premium is eating up too much of your paycheck, maybe you want to check it out. The first place to start is at a county social services office or your local community action agency. If you live in Minnesota, go to www.mnsure.org.
Check out what is coming out for Flex Benefits, if you have them, and retirement. Is it more than you can afford? Do you have a lot of flex being taken out of your paycheck, and then you never use it, so you lose it? If so, lower that amount next time around. How about your retirement? It is necessary to invest in your future. But you don’t want to sell yourself short right now either. Find a number you can comfortably live with right now. And again, if you find you have a lot of money to play with at the end of the month, maybe you want to start sinking more in to your retirement funds.
After taking a look at what is coming out of your paycheck every week, two weeks, or month, take a look at how many hours you work. Do you regularly work a full 40 hour week, if that is your schedule? Or do you consistently fall short? I have worked with many people who have budgeted themselves for 40 hours, but their budget never quite worked for them because, they realized, they consistently fell short of 40 hours during the week. That makes a huge difference on how much money you actually bring home.
Take a look at the last two months’ worth of paystubs. Did you consistently average 40 hours? And if you fell short, did you get vacation pay or sick pay for those hours, or do you lose money? For the purposes of your budget, come up with an average of how many hours you have worked in the last two months.
You do some homework. Study your paycheck, figure out what you are really bringing home every month, and make any necessary changes. And we will meet here again to talk about any extra income you may bring in.