Step 1:
Gather all your bills, bank, and credit card statements from the previous month. From the 1st to the last day of the month. We are going to find out where all your hard earned cash is going! Printing these statements and having them right in front of you with a few highlighters is best. You can copy them from online forms to paper if you want just be sure not to miss anything.
We are going to look through our statements and figure out which are FIXED and which are VARIABLE expenses. What's the difference?
FIXED EXPENSES: These are costs that are the same every month. You always know how much they are going to be and they reoccur at predictable times every month. (i.e. have a due date) Examples are mortgage/rent, car payment, insurance, cell phone, internet, and any credit card payments. (Credit card payments do fluctuate, but we want to get out of debt, so we make those fixed payments, more about that later)
VARIABLE EXPENSES: These are costs that go up and down. They very every month. These are where most of our money magically disappears to. The take out, the coffees, the groceries, the utilities (for some of us these are variable but can be fixed), gas for the car, the gift you bought your nephew, the new shoes or your medical expenses. There are many and each person will have their own categories.
We will start with looking at our fixed expenses. Go through and highlight all your FIXED expenses for the past month. This is why you have your statements in front of you. It's easy to forget about the subscriptions, the gym, or even that membership to the car wash that are automatically taken out.
Next it is helpful to list all the fixed expenses on a separate sheet. There are many fun templates you can purchase or create your own, but plain paper works too! List them with the date due, and the amount.
Then total all the amounts together! This is the total of most of your obligations each month.
Now we are going to take that total and divide it by the number of times you get paid monthly.
Example: Total: $2,200 / 2 (paid twice monthly) = $1,100 This is the amount needed to take out of each paycheck for monthly FIXED expenses.
After we take our FIXED expenses out of our pay, what's left is what we will envelope budget for all our VARIABLE expenses! (Step 2)
Example: Paycheck= $1,950 - $1,100 = $850 remaining. There is $850 left to pay for our VARIABLE expenses.
Next Step 2: Setting up our envelopes!
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