3 Easy Steps To Create A Budget To Fit Your Needs
Sometimes the idea of money just sounds a little bit outdated. Things like having to create a budget, rely on a job or a business–what if you could get by in the world without it?
Not very practical, I know. But I did once got this notion to go off the financial grid. It was just after reading an article about a guy who hasn’t spent money in over 30 years.
Now, this was back in the day when lots of articles were coming out about people doing pretty wild things when it comes to money.
I read stories about people who paid off all their debt in 1 year by living in a dormant trailer. Or extreme minimalists who didn’t buy anything new for seven years. And stories about someone who didn’t create any garbage in five years.
BUT, while I super admire these individuals and there is something so appealing about having such unwavering self-discipline, I am really not that committed.
At the same time, another thing I’ve realized is this…
There is a balance in all things. But I’ve come to learn that I don’t really need to STOP spending money. I just need a plan on how I’m GOING to spend it to serve me and my dreams better.
Because let’s be honest. Unless you’re of that .001% of extremists, you’re going to be spending money this year. Chances are you need a plan! So from here on, I’ll show you some of my favorite ways to create a plan to spend money that serves you, your business, and your dreams.
So, before we can create a plan to spend, we need to know how you are CURRENTLY spending your money. That means we need to create a budget.
Now, here is the most important thing to know about budgeting…
The idea of budgeting is not to SHRINK to fit your budget, but to make a real plan to EXPAND into your dreams.
So clearly, creating the budget itself is step one! Now, let’s talk about how to do that with ease!
There are two types of budgets you will need as a small business owner: a personal budget and a business budget.
As an Entrepreneur, your personal life and your business life are going to blend together, at least for a while. If you are a two person household your personal budget should include BOTH of your income and expenses, even if you split expenses 50/50.
This is because a two-person household means two-person dreams! So you need to account for what both partners want out of budgeting.
Now, the only three things you will need to create both a business and a personal budget are as follows:
- Total average income
- Total average variable expenses
- Fixed expenses.
You can create your budget on a piece of paper, a word document, or my personal favorite: an excel spreadsheet.
Now, let’s make creating a budget as easy as 1-2-3! Here are my three steps:
Step 1: Create your average personal income and average business income. Take the last six months of income data (or at least three months of data if you don’t have six). Then add them together and dividing by six. Then and record them separately.
Example: If I and/or my partner am on a salary at work, this will be an easy one to figure out. We make the same amount each month. So I know for the personal side I can put X dollars per month.
On the business side, if your income fluctuates, collecting six months worth of data will help you understand how much you make on average. If you’re not currently making any money, then that should be easy to calculate as well.
Here’s an example on how to record this data:
Total Average Personal Income per month: 6,000
Total Average Business Income per month: 10,000
Step 2: Record your fixed expenses both on your personal and business budget separately.
Example: A fixed expense is something that never changes. For instance your internet bill might always be $40/mo. Doesn’t matter how much you use it or what month it is–it will never change. Same as other fixed payments such as rent, car insurance, car payments, or health insurance.
Record this data like this:
Total Personal fixed expenses per month: 5,000
Total Business fixed expenses per month:: 2,000
Step 3: Create your average variable personal and average variable business expenses. Take the last six months (at least three months of data is needed) add them together and divide by 6. Then record them on separate lines.
Example: A variable expense is something that always changes each month but you still spend money on it. For instance this would be things like date nights, the water bill, fuel, travel, household items, groceries, or pet needs.
Record this data as follows:
Total Personal variable expenses per month: 1,750
Total Business variable expenses per month:: 1,000
Now take the total income and subtract expenses. This tells you one of two things: how much you have left at the end of the month or how much you overspend.
Here are some examples:
Total Personal Income: 6k
Total Personal Expenses: $6,750
Total loss: -750.00
Total Business Income: 10k
Total Business Expenses: 3K
Total profit: 7K
This process will help you understand your spending habits. You’ll see where you can cut back where to increase. You’ll also see how much you need to make in your business to cover both business and personal expenses.
A budget creates a snap shot about where your business and personal life are, so that you can create a plan for where you want your business and life to be. Remember, it’s not about scarcity–it’s about making a real and workable plan about where you want to be!
Until next time,
Love, light, and MONEY, Honey…
Kaylee
P.S. That guy I mentioned above? He lives in a cave somewhere in the desert and took hand-outs or bartered to survive. I’d happily support his cause with some cash if I ever saw him!