Creating a monthly budget will help you get out of debt and start building wealth. However, budgeting is much easier than executing. If you want to take full advantage of budgeting, practice self-restraint and apply the discipline to follow it.
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Part 1 of 4: Knowing the Number of Treasures Acquired
Step 1. Calculate your monthly income
Generally, a budget is made for one month. So, first of all, you have to determine your entire monthly income. Remember, the number used is the amount of net income that has been deducted by taxes.
- If you're paid hourly, multiply your pay rate by the number of hours worked each week. If your schedule varies, use the smallest number of hours worked per week. Multiply your estimated weekly income by four to get your estimated monthly income.
- If you're on an annual salary, divide your income by 12 to get an estimated monthly income.
- If salary is paid semi-monthly (bi-weekly), make a budget based on your monthly income, which is the sum of 2 payslips. This is useful if the budget is quite tight. Then, twice a year, you will receive a bonus slip for savings.
- If you're working odd jobs and your income isn't steady, average your earnings from the last 6-12 months. Make a budget based on these averages, or choose the lowest monthly income amount to anticipate the worst-case scenario.
- For example, let's say your core income is IDR 3,800,000 monthly salary,
- Again, you have to subtract your paycheck with the tax burden to get a net income. Only net income figures are used to create the budget.
Step 2. Take into account other sources of income
Other income includes all the money you receive regularly outside of your main job.
For example, if you receive $200,000 for work outside of your main job, your total income will be $3,800 + $200,000 = $4,000
Step 3. Don't take bonuses, overtime, and other non-recurring income into account
You cannot rely on these incomes to meet basic needs. Therefore, do not include it in the monthly budget.
The good news is, if you receive additional income, the money earned can be used (or better yet, saved) as you see fit
Part 2 of 4: Determine the Amount of Monthly Fee
Step 1. Calculate the total debt payment each month
One of the keys to the success of a good budget is tracking costs properly. This includes payment of debts and other expenses. Calculate how much you spend per month on car loans, mortgages, rent, credit cards, student loans, and any other debt you have. Mark each number separately, and calculate the total to determine the amount of monthly credit spending.
For example, your monthly debt consists of: a car loan of Rp. 300,000, a mortgage of Rp. 700,000, and a credit card of Rp. 200,000. The total monthly credit payment is IDR 1,200,000
Step 2. Monitor your monthly insurance payments
This payment is usually given to creditors, the owner of your residence, motor vehicle creditors, and health and life insurance every month.
For example, your monthly insurance costs consist of: Rp. 100,000 car insurance and Rp. 200,000 health insurance. The total monthly insurance fee is IDR 300,000
Step 3. Average your monthly utility costs
Utility costs are service fees that are paid monthly, for example bills for water, electricity, gas, telephone, internet, cable and satellite television. Collect all payment invoices for the past year and average them to get an estimated monthly payment for each utility. After that, add up all the averages to get an estimate of the total monthly utility costs.
For example, your monthly utility expense consists of: a water bill of IDR 100,000 and an electricity bill of IDR 200,000 so that the total monthly utility cost is IDR 300,000
Step 4. Determine your average cost of basic necessities each month
Look at invoices for purchases of basic goods over the past few months and determine the cost of basic necessities usually spent each month.
For example, your average monthly cost of groceries is IDR 1,000,000
Step 5. Look at your withdrawals in previous months
Look at your bank statement or ATM withdrawal slip to determine how much money you withdraw each month. The trick, determine the amount of money spent on the items needed, against the desired items.
- If you keep withdrawal slips from previous months, go through them and calculate how much money was spent on needed items (food, gas, etc.) branded, etc.)
- If you don't keep any evidence, try making an estimate based on your memory.
- For example, if you withdraw IDR 500,000 per month from an ATM, and you spend IDR 100,000 on basic commodities, the amount of money spent on the desired item is IDR 500,000 – IDR 100,000 = IDR 400,000.
Step 6. Consider special loads
Special expenses do not occur every month, but occur frequently enough to be anticipated. For example, birthday gifts, vacation expenses, and repairs or replacements that will have to be paid for in the future. Determine the number of special burdens that will be faced each month, from January to December.
For example, you anticipate car maintenance costs of Rp. 100,000
Part 3 of 4: Creating a Budget Map
Step 1. Decide how to monitor your budget
You can use paper and stationery, standard spreadsheet programs, or specialized budgeting software. The software makes it easy for you to calculate and modify your budget as needed, but you may find it more comfortable to write your own budget near your checkbook or credit card as a reminder.
- One of the advantages of using software (such as a spreadsheet program) to map out a budget is that you can perform “what if” tests. In other words, you can see what happens to your budget if your monthly installment costs increase by IDR 50,000 just by entering the new value into your “House Installment”. The software will calculate everything immediately automatically and you will be able to see the effect on your monthly expenses.
- In the US, Bank of America provides an example of a free downloadable format.
Step 2. Create your budget
Separate the budget into two main parts: income and expenses. Fill in each section with the previously calculated information, marking separate notes for each source of income and expense.
- Compute two totals for the “revenue” section. For the first total, add up all the new earnings that are brought in each month. For the second total, add up everything at once, including the money saved in the account.
- Count three totals for the “load” section. For the first part, add up all of your fixed costs, including the cost of paying off debt. Fixed costs are costs that must be incurred (although some costs such as food, the amount varies each month). In general, these costs are a priority to be paid.
- For the second total, add the variable and non-essential costs together for which you can control (such as snack or entertainment costs).
- For the third total, calculate the total cost by adding all the costs together from the previous two categories.
Step 3. Subtract your new revenue figure from the total cost
To save money, you must have a positive number difference. The budget will break even if the expenditure and income figures are the same.
For example, if your total costs are $3,300,000 per month and your monthly income is $4,000,000, the difference will be $4,000 – $3,300,000 = $700,000 per month
Step 4. Make adjustments
If the difference between revenue and expenses is a negative number, find your variable costs and make adjustments. Non-essential costs, such as games and clothing, may be deducted from the budget. Keep making adjustments until the revenues and expenses in the budget are a breakeven or positive number.
Ideally, revenue should exceed costs and not just break even. Unexpected costs will always appear every month
Step 5. Make sure that the total cost does not exceed the total revenue
Sometimes, total costs that exceed total revenue simply means reduced savings. While it's okay to do something once in a while when it's absolutely necessary, don't make it a habit. If total costs continue to exceed total income (including savings), you will fall into debt.
Step 6. Keep a printed copy of your budget
Place it near a checkbook or in a special folder for safekeeping. Electronic copies also need to be kept, but copies should still be made just in case something goes wrong on your computer.
Part 4 of 4: Making Adjustments
Step 1. Review your budget regularly
While monitoring the budget each month, review the budget and make revisions if necessary. Monitor revenue and expenses for the past 30-60 days (increase the range if your income and expenses vary greatly each month) to make changes and adjustments accurately. Compare actual expenses with budget. Look at expenses that increase each month and try to work on these increases if you can.
Step 2. Try to save if you can
Analyze your expenses and look for areas where you can save money. Maybe you don't realize how much you spend on snacks or entertainment. Look for a bill that is a large portion of your total budget that you don't expect (for example, if you spend more money on cable and cell phones than on food). Look for ways to be frugal and save money in the following months.
Step 3. Adjust the budget for savings or life changes
There will be times when you need to save up to buy something expensive or adjust to an unexpected event in life. When this happens, start at the beginning and find a way to budget for the new costs or savings needed.
Step 4. Be realistic
While it's important to change your budget during the drafting stage, you shouldn't change it too much. Even if you plan to spend only on basic necessities, the prices of these items (such as food and gas) are volatile and unpredictable when budgeting. Always prepare funds to anticipate price changes and do not set savings funds that make the difference between expenditure and budget income too close.
