Making Numbers Work for You

The most basic fact of budgeting is that you need to have more money coming in than going out. While this concept is incredibly simple, the execution can get a little tricky, especially if you are already in debt. However, once you learn how to make the numbers look pretty and lined up so you aren't sinking, budgeting can become your best friend.

Let's create a sample budget. There are two ways you can go about this.The first way is to figure out how much your committed expenses are and then figure out how much you need to earn to cover these expenses (each month, each week, each day etc.) So if each month your committed expenses (utilities, insurance, mortgage payment, car payment, groceries, i.e. the things you MUST buy) total $1500, then you absolutely MUST make at least this much. Keep in mind this does not cover any contributions to savings, retirement, kids tuition, emergency funds, or anything beyond necessary expenses such as entertainment or eating out. This method of budgeting works best for people who earn a good portion of their income from commissions or tips. If your salary is not set in stone this works as a form of motivation. You know your goal and you must hit it. Anything beyond that goal is icing on the cake.

The second method of budgeting is to take how much you earn and appropriate it towards your committed expenses and then use the left-over for savings and other less urgent expenses. This method works best for people who are working on a set, non-hourly salary.