JENNIFER HALEY, CPA
Hi there, I'm Jennifer Haley, CPA. I'm here to help business owners get a handle on their finances so they can get back to doing the things they love.
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Wow, you actually clicked on this post, I am so excited! Now I'm going to cross my fingers and hope I can keep you here and have you equipped with the tools to complete your budget and use it as a guide through life.
You may have heard me say before but if not, I actually HATE the word budget. Every time I hear that word I instantly want to fall asleep (it's like I'm being dragged into Sears in the 90's with my Mom 😴).
Instead you'll hear me instead use the terms Financial Purpose or Intentions! These words are much easier to digest; and c'mon they just feel lighter and exciting!
I'm going to start by writing out the steps for you to follow in creating your financial purpose. Do one step at a time and feel free to do one step a day or do them over a period of a week or two. This can become very overwhelming and the last thing you want to do is give up; so stick with me and be gracious to yourself.
Step 1 - The Gather
Gather 1 month of all of your bank/credit card statements. It doesn't have to be this month or even last month. I actually recommend picking a month that would be the most realistic picture of your spending habits (Eg not December when you are in the Christmas rush and not January when you are reining in on your spending).
Extra Tip: Gather 3 months of your statements (the months don't need to be in order). We will work with an average below for an even more accurate reflection.
What you will need for the next steps:
Step 2 - Calculate your Income
At the very top of one of the pieces of paper write My Financial Purpose; then write one quick financial intention, the reason you are doing this! Come back to this as you start to get overwhelmed or board, it will help keep you focused.
Next, under your financial intention but towards the top of the page write down your total monthly income. If you are paid bi-weekly, assume 2 pays in a month (we will deal with the 2 times you get 3 pays at another time) this is the benchmark we will use for creating your financial purpose as it is the most stable cash flow mark (ie 10 months out of 12; as in 10 months out of 12 you do get just 2 pays).
Okay, so you may have done the first 2 steps at once, they are pretty light. You may want to step away and come back in a bit, or if you are feeling head strong, lets push on to step 2.
Step 3- Fixed Expenses
It is time to lay out those statements; one statement at a time (if you decided to party earlier and grabbed 3 months of statements, we will start with one month and then you will do this process for the other 2 months).
Let me guess your eyes are glossing over as you run through those transactions in your statements. Stay with me here, we are going to focus on just your fixed expenses. These are the expenses that happen automatically each month and don't fluctuate often; like your mortgage payment (not your groceries)
Using one highlighter color (if you have multiple), highlight each of these types of items. Once you have done this with all of your statements total all of your highlighted items and list this under your income as your fixed expenses. If you have 3 months of statements average the total of all 3 months.
Extra Tip: We are going to include your debt minimum payments as a fixed expense, check you line of credit, credit cards, etc for minimum payments and add these in the totals. We will look at paying off your debt later but right now we just want to figure out what you have to pay regardless.
Step 4 - Variable Expenses
It's time to pull out the rest of your highlighter colors. If you don't have one that is okay, your finished art piece just won't have as much flare :)
Now we are going to focus on the rest of your expenses (aka the remaining transactions that aren't highlighted). You are going to highlight and group the rest of your expenses in categories, some common categories are:
Once you have categorized each expense, total up all of the expenses for each category; list this below your fixed expenses on your piece of paper.
You got through it, you got through the worst part of it all (well in regards to work!). Take a break, you deserve it. Go walk the dog, have a coffee or binge watch Emily in Paris. Just let you mind breath because the next step might be hard to digest and I want you to be strong as you tackle it.
Step 5 - Calculating your Current Situation
I hope you enjoyed your walk. Or maybe it's been a few days because I told you about Emily in Paris 🇫🇷 and now you are obsessed.
This step is quick, but usually packs the biggest stomach punch. Are you "living within your means" or are you slowly increasing your debt position.
Take your income total and subtract your fixed expenses and then subtract your variable expenses.....your answer, does it have a dash in front of it?
If there is a dash, don't panic, this is the exact reason we are doing this exercise, to figure out where, what, and when you should be spending to create your Financial Purpose!
I'm assuming you know if you have a positive number than it means you have extra money each month, as in you are not spending more than you are earning. If you have a negative number here, then you are spending more than you are earning in income.
In the next step I will go through how to manage your deficit and even your surplus.
Step 6 - What Next
*Add note about annual expenses