HOW TO BUILD A WINNING BUDGET YOU’LL LOVE FOR BEGINNERS – PART 1: INCOME
“Act Your Wage”
Board Game Title, And Brilliantly Clever Advice, By Dave Ramsey – Board GAME Available Here
Gross Income
Now, I know what you’re thinking: “I know we’re talking budgets, but gross? How is getting money gross?”
Not that kind of gross.
Before you can begin telling your money what to do, you’re going to need to know exactly how much of it you’re dealing with. And here’s the catch that I’m willing to bet some of you have never considered: You technically make more money than you bring home.
And that’s gross. In both senses of the word.
Take Home Pay
If you’re like I was, you probably have a rough idea of what your paycheck is going to be every pay period. You may even be pretty good about having some left over before the next payday. But there’s actually a little more to it than that.
The amount of money deposited into your bank account each month is your take home pay. It’s the amount of money you get to play with after deductions.
In my experience, these deductions typically include a variety of mandatory donations in the form of income taxes, social security, employee retirement plans, etc. Optional deductions may include 401(k) contributions, health insurance, supplemental insurance, pretax health savings account contributions, and anything else you opt into.
Why Does It Matter For Your Budget?
Now, some of you just saw the words “taxes”, “insurance”, and “401(k)” and almost closed this window. Congratulations for pushing through to the next paragraph!
I point all this out because I believe it’s important that your budget take everything into account, even those things your employer deals with on your behalf.
Why is this important? Because it’s your money. You earned it. You should know where it’s going and why it’s going there even if you don’t have a say in it.
How To Get Started With Your Budget?
How do you take all this into account exactly? By using either your gross pay as your budgetary baseline, or your take home pay. As I alluded to before, your gross pay is simply every cent you earn, whether you get to decide its fate or not, while your take home pay is what actually gets put in your bank account.
I have found that the easiest way to discover my gross is by examining pay stubs every time I get paid. Typically, they list my full earnings, followed by a list of pre and post tax deductions, and finally my take home pay. I choose to include these deductions in my monthly budget, because by doing so, I’m forced to be aware of the movement of every single penny I earn. This information helps me construct the first two sections of my budget. I’m a nerd that way.
It’s easier for most people to simply look at what they have coming in as take home pay, and working from there. If the word “spreadsheet” scares you, you probably want to go this route (like most people).
Section 1 of your budget should be a list of every paycheck you plan to receive for the month you’re budgeting. You will list your pay beside each paycheck. At the bottom of this section, add together all your paychecks to find your total pay.
Section 2 of your budget, should you choose to go this route, should be a list of every deduction that comes out of your paychecks. Some of these we may eventually move to another section of your budget, but starting out, it will be beneficial to see them all in one place. (Skip this if you are just planning to work with your take home pay to begin with.)
Once listed, add all your deductions together. Subtract your deduction total from your gross total, and you should now have your total take home pay for the month. This is the amount of money at your command.
Armed with this knowledge, go tell it what to do.
Do This Now
Using your pay stubs from last month, retroactively begin a budget. If, like me, your income is fairly consistent month to month, you can use this as your launching point for next month going forward. If you expect your income to be dramatically different, practice with last month’s information so that you are prepared to act once you become aware of the upcoming month’s income.
And remember, regardless of your money goals, you can “Bank on a Budget” to get you from where you are to where you want to be!
Budget At A Glance (So Far)
Section 1: Gross Income
Section 2: Paycheck Deductions
Want some budget help?
It’s your money. You earned it. You should know where it’s going.
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I understand that starting with your gross pay is not necessary, but for me, it helps me have a better understanding of my finances. Have you ever considered budgeting this way?