How To Make The Right Calculations Work For Your Budget!

Congratulations on putting a budget together as it’s one of those things that people tend to shy away from as they believe it is too much work. I agree it is work but once you have it in place it’s easy street after that.

One of the frequently asked questions I get is, How do I know how much money to put in each category? If you have followed my Budgeting Series you will read about how we designed our budget but not so much the calculations we used to come up with the numbers. I wanted to show you some examples of how we may have arrived at our numbers.

How to make the right calculations work for your Budget!

Yes it’s all about the numbers and don’t be afraid the math won’t bite you!

Let’s start at the basics…..during the month you’ll spend money and earn money, it’s a way of life. Normally you wouldn’t take much notice of how the payments are setup until now.  Now your listing payments on a budget sheet and trying to track them. Payments of bills or wages can come in a variety of schedules…….tracking them on your budget depends on which ones you’re working out.

Here’s an example:

You get paid a Salary that’s paid to you monthly at $3000 (net) which is easy, the budget is already set out month by month, all you enter for income is $3000. But what happens if it’s weekly?

You earn $750 per week (Net), sounds the same as the one above right? Wrong…..there’s  52 weeks in a year so to convert it to the same time frame as your budget (i.e. Monthly) we’ll have to work it out.

$750 x 52 weeks = $39,000 and then divide by 12 (months) to get your monthly figure of….

$39,000 / 12 months = $3250 per month.

Bi-weekly will be the same as weekly just x 26 (that’s half of 52)….

$1500 X 26 weeks = $39,000 / 12 months = $3250 per month.

The same rules apply for bills, say car payments are set up bi-weekly……$250 every 2 weeks:

$250 x 26 weeks / 12 months = $541.67 per month.

The monthly figure only needs to be set up for your BUDGETED monthly costs, NOT what you actually pay out each month. Take a look at the calendar in any given year and they’ll be months with 5 pay periods (based on weekly pay), 3 pay periods if it’s bi-weekly. This has an effect on your income and bills every so often where you’ll get extra pay one month but  you’ll also have extra payments to make.

Here’s an example:

You pay your mortgage bi-weekly at $650 making most of your monthly mortgage payments at $1300, but that extra period will now make your monthly mortgage a total of $1950 !! That’s quite the difference especially if your pay is on a monthly basis as you won’t have the advantage of having an extra pay.

One great reason to convert everything to monthly payments is to smooth out the up’s and downs and give you a more stable figure of what your actual monthly costs are. It will allow you to save extra in the months you’re under budget and have more cash for those months that require more money.

As a reference  for 2012 – extra pay/bill periods are in Bold:

January

February

MARCH

April

May

JUNE

July

AUGUST

September

October

NOVEMBER

December

Another quick tip before I go……I know I just told you to convert to monthly but always calculate your budget based on your smallest monthly income (i.e. basic hours, no overtime), if you’re having to work overtime just to make ends meet you’re already in trouble.

I calculated my income (basic hours) based on my 2 pays per month (I’m paid bi-weekly) and consider the extra pay period every so often as a bonus. My mortgage payments are weekly but converted to monthly for the budgeted costs so every month I’m putting a little away for those months I have to pay an extra mortgage payment.

When the time comes I already have the money put aside and ready to pay that extra payment in our “projected expenses” account.This is an account where we save money for expenses we know we will have to pay at some point in the year. We factor in these costs to our monthly budget and set them aside… hassle free bill paying!

So before you rush off to make your budget make sure you calculate the right figures in order to balance the budget and spend less than you earn!

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Mr. CBB
I’m from the UK and now a recent permanent resident in Canada. I bought my first house at the age of 21 after University then my second at the age of 24. I’ve always been fascinated with personal finance, savings, learning to make money and watch it grow while combating debts along the way. Canadian Budget Binder is a place where I get to share my experiences with personal finance and learn about yours along the way. I hope you stick around and check me out on Twitter, Facebook and Pinterest where I am active on all social media sites. Cheers, Mr.CBB
Mr. CBB
Mr. CBB

Comments

  1. Zayba Ramoutar says:

    Once again….great tips :) I’m learning so much from you! Thanks :)

  2. amie pepper says:

    Great tips.. i do my different but i think i might try out your way for a little and see how i like it and what one works better for me!!

  3. Penny Anda says:

    I did it and wow did my eyes open. I think some of us are fooling ourselves to thinking we make more we spend more not me I’m sooo frugal.

    • I think for the most part people truly want to save but it’s important to make sure we have the proper calculations and are saving enough in the budget to pay for these bills. Cheers and thanks for your comment Penny! Mr.CBB

  4. Some great tips! If only you had posted this a month ago! Lol

  5. Joanna Cheevers says:

    Thank you for sharing this, nice to have an explanation of how you came up with some of your numbers. For me, I get paid twice a month so I don’t have to worry about any extra weeks of pay, it only flucuates by a couple of days depending on the number of working days in the month.

  6. Great article. So many people don’t know what numbers to use when they are creating their budget and as a result get themselves into more trouble!!!

  7. Barbara Edwards says:

    Some super tips posted. Thx

  8. Wendy LeDrew says:

    great post, and great tips to follow! Thanks for sharing.

  9. Tina S says:

    Thanks for sharing :) I love reading your posts

  10. I am a big fan of budgeting. My wife and I were able to pay of $52,000 in 18 months after we put a budget together and stuck to it. Our plan is to have our mortgage paid off in 6 years and be completely debt-free. Thanks for the post!

    • That’s awesome mate! It’s great to hear success stories from others who use a budget to motivate the people who are leary or still contemplating its worth. How did you design your budget? MR.CBB

      • As far as how we put our budget together, I created a one page Excel spreadsheet where I listed income on top then expenses underneath which then gives us our surplus/deficit. I then subtracted the minimum payments of our debts from the surplus/deficit and that gave me the total “extra” money we had to reduce our debt each month. We then did everything we could to make that number bigger, so we started going line by line and reducing our expenses. We still do a budget on a monthly basis and I would recommend it to anyone.

        • We did something similar but incorporated other info that we wanted to see such as coupon savings, where the items were purchased, dates, and year to date charts etc.. it’s amazing and I”m sure you will agree that once you see the numbers you are motivated each month to make it better! I hope to roll out the Canadian Budget Binder Spreadsheet soon. I’ve currently got 4 fans testing it this month… Cheers Mr.CBB

  11. That is interesting about adding the coupon savings, that is definitely a good way to have a visual of how much money you save. I would love to check it out when it is available!

    • It has been interesting to see where all the money is saved and going. We realized in the end that although we were saving quite a bit with coupons we were still overspending on groceries each month. Most people don’t realize that if you don’t have the money in the budget no coupon is going to save you anything if it ends up on credit. We decided to start The Grocery Game Challenge for this reason. We now have $190 a month for groceries and by posting our shops it helps us keep that number in check. We are excited to see what the end of year figure gives us in this category. We have our members that play along with us for motivation and support as well. Cheers Mate! Mr.CBB

  12. hvanblokland says:

    Reblogged this on Savvy Saving 101 and commented:
    Very clearly written and easily understood. This is a must-read!

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  1. [...] the work for you, and all you need to do, is make your list, and shop…. spend less than your budget! Then come back when you are all done shopping for the week and post it all, right here in the [...]

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