January 25, 2012

How To Budget: Dear Past Me...

Dear Past Me,

For most people, this series of How To Budget posts will be as helpful as a series of recipes for boiling water.

For you, on the other hand, they are necessary. You are functionally illiterate when it comes to money. Sure, you make money. Sure, you have grasped the idea bills need to be paid on time, and you maybe even understand (intellectually, for what that's worth) the concept of spending less money than you bring in.

But - let's face it - you're still an idiot.

So I'm going to be kind to you, Past Me (and by "kind" I mean I'm going to help you out, not stop insulting you.) I'm going to help you set up a budget, tweak it, and - bear with me, I know this one is hard - I'm even going to help you live within it. I might need some help myself with this last part, but I'm still smarter than you, so stop laughing.

Ready? Then put down that jar of Nutella, fire up your online banking (or - gasp! - pull out your last six months to a year of bank statements) and listen up:

How To Budget, Step One: Figure Out How Much Money You Make

For this step (also known as the "fill saucepan with water" step), we need to do some math. Daunting for a graduate of Calculator Use 101-401 classes in high school, I know, but possible.

You need to figure out how much money you can count on going into your account on a monthly basis. For this, you need all of those paystubs you threw away after they spent six weeks or so in your purse, and since I know you don't have those, you need to look at your bank records.

How much money do you bring home, and how often? Does the dollar amount fluctuate, or is it the same every time?

If it's the same every time, figure out what that means per month (because I said so, that's why.). If you're paid weekly, multiply your consistent take home pay by 52, then divide by 12. If you're paid biweekly, multiply by 26 and divide by twelve. Semi-monthly? Multiply by two. Monthly? You shouldn't even be asking, but frankly, I'm not surprised.

If your pay fluctuates, you have two choices: The Safest Way, or The Easier, But Slightly Less Safe Way.

The Safest Way involves finding the lowest paycheque you've ever brought home in the last year and basing your budget on that.

The Easier, But Slightly Less Safe Way involves venturing into the land of averages: adding up every paycheque you've received in the last year, and dividing by the number of paycheques. Now you have to go back three paragraphs and convert this number to a monthly figure.

You're tired, Past Me. I can tell because your eyes are closed and your snoring a little. Why don't you take a break from this incredibly hard work? (But don't spend anything until I come back.)

This time last year: Miss Bedtime