Whether you go to work, pick up your paycheck and take care of your finances accordingly or you have multiple streams of income, both large and small to organize, knowing what you have coming in is a cornerstone of a successful budget. In this basics of budgeting series, we have looked at Daily Expenses and Monthly/Regular Expenses so almost all of the outgoing money should be covered. Even though some will consider this backward, I have always preferred to look at the outgoing before the incoming. Now that the outgoing is accounted for, let’s take a look at income.
This is obviously first and foremost as it is most likely your primary source of income. There are variances with everyone, so freelancers and business owners will have to develop other methods of obtaining a regular “salary”. For those of us who do receive a paycheck regularly, we have to divide those funds to allow all obligations to be covered, hopefully with some left over when all is said and done. Depending on how often you are paid, figure out what you make monthly (on average) and prepare for financial obligations based on this number. If your paycheck is your only income, and there is a minimum of variables in these numbers you are pretty much set for a rough budget. Here is a sample budget (courtesy of moneyinstructor.com).
Granted, your budget will look absolutely nothing like this one. Luckily, there are a number of templates and samples to choose from so you can choose which works best for your budget.
Other Income Sources-
There are a number of income sources that are so variable that they are nearly impossible to budget for. Dividends from stock holdings and royalties from any projects are never constant or predictable. If these are a large source of your income, use the law of averages as best as you can and budget accordingly. If these payments are sparse, I recommend not planning for them in your budget at all. If you can not count on it, pretend it is not going to be there for you. That way, when it does come in, you can use the money for anything you please.
I recommend that everyone, no matter their occupation, have some sort of side business. Whether it is an emerging consulting firm or a small ebay business selling things from yard sales, side business income is still income. Not to mention that if you are passionate about what you do on the side, and can make it your livelihood, you may never have to “work” again. Budgeting for your side business income is a bit easier than counting on dividend income or royalties. You should have expectations for your business and plan for this income…even if you plan on pumping the funds right back into the business. If the income from your side projects are seasonal, then only plan for this income during the time of year you will be doing decent business.
Above anyone else, a budget is most necessary when on a fixed income. Especially if the fixed income is the sole income. With nothing else coming in but a Social Security or Disability check if you are loose with your money, you can get behind very quickly.
There are a bevy of income sources that may or may not need to be included in your budgeting plan. The best rule of thumb for determining whether to include it in a budget plan is to decide whether you are certain you can rely on this income. If not, budget without it. If you rely on the income and it does not come in, your budget is destroyed. If this does happen, that’s okay. Get your numbers together and try again. I can not stress enough that budgeting is not a certainty and it will take plenty of trial and error before you nail it.
Phase three is now complete!
If you are playing along at home, you now know what is going out daily, going out monthly/regularly and have determined to the best of your ability your income. The next step takes it to a whole new level so be prepared to do some organization and plug some numbers…it’s coming soon.