Balance Your Books, or Else. Part II

Balancing your books is relatively easy.  You just have to have the time, the information and a little determination to draw a clear picture of what you have, what you owe and what you need to bridge the gap.  Warning – some charts are involved!  Aspirin may be required once you see the numbers.

Using pen on paper or a PC, whatever you are most comfortable with, get started laying out your expenditures.  You need to be able to answer one simple question:  where do you regularly spend money?

A great way to get started is to create spending categories.  If you are lucky, your credit card company already has your categories broken out and will even provide an annual summary and detail statement of every dime you charged every time you charged in the prior year.

If you don’t have access to that kind of information, general categories could include things like gasoline or transportation costs, food, electricity, communication including phone, TV and high speed internet, rent or mortgage payments, car payments, entertainment, personal upkeep for dry cleaning and hair dresser costs and a category for sundries like make up, shampoo, lotions and potions   Just make sure you capture everywhere that you spend money….yes, including Starbucks.

Once you have the categories, make sure you add some categories for those once a year charges.  Why?  Because these one-time costs that will KILL your budget if you don’t.  These are items like insurance – life, car and house and taxes including property taxes and school taxes.  In the example below these are called “Fixed” costs.

Now add up the columns.  If you did monthly costs, multiply by 12 to get annual, recurring costs.

Add the one-time, once a year charges and you will get your total, annual outlay which might look something like this.

 
Add the numbers up and it comes to $42,300.00.  Now that’s a whole lot of post tax income needed to keep the engine of your life running.  So, the next step is to see if your post tax income is going to cover the expenses.