My Budget, Where Do I Start?
Q. I want to start the budget process but it’s overwhelming. Where do I start?
A. Good for you for seeing the importance of budgeting. Don’t be overwhelmed by what everyone says you should include in your budget. The best place to start is to look at your income. Since I come from a payroll background, I’ll try to take you to a more exact starting point than most planners do.
Let’s just assume you make $2,000 per paycheck and that you are paid twice per month. Twice per month is the same as semi-monthly. You are single and your W-4 says to claim 2 allowances. You claim 2 allowances in California also. Your budget does not start with $4,000. Most planners will have you take a percentage of your income as taxes. Since that percentage changes as you move up and down the income scale, I prefer to use a more exact method. Head on over to PaycheckCity.com and select the “Salary Paycheck Calculator” under the Basic heading. After selecting your state and entering all the information, you get a per check take home pay of $1,529.93. This is your starting number. Because you are paid twice per month, you double this amount to $3059.86. That is the amount you have to spend each month. This must be divided between fixed costs like mortgage/rent, car payments, insurances, food, gas, utilities and entertainment as well as general personal needs. I’ll discuss splitting this up in the next post next week.
This amount could change based on any pre-tax items you may have taken from your check. Health insurance and 401(k) plans generally fall into this category. It is very important to know exactly how much you take home before starting this process. Also, if you are getting huge refund at tax filing time, perhaps you should adjust up your allowance numbers. This increases you take home pay and adds to your budget. Check with your CPA or tax planner for details.
