How To Make Your Budget Calculations Work

Estimated reading time: 5 minutes

Take the guesswork out of budget calculations with these step-by-step examples. Learn how to allocate your money to different categories in your budget confidently.

Congratulations on putting a budget together, as people tend to shy away from it when they believe it is too much work.

I agree it is work, but it’s an easy street once you have it in place.

One frequently asked question 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 about the calculations we used to create the numbers.

I wanted to show you 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.

Basics Of Budget Calculations

Let’s start with the basics. During the month, you’ll spend and earn money; it’s a way of life.

Normally, you wouldn’t take much notice of how the payments are set up until now.

Now, you’re listing payments on a budget sheet and trying to track them.

Payments of bills or wages can come in various schedules.

Tracking them on your budget depends on which ones you’re working out.

Example: Budget Calculations

You get paid a monthly salary of $3000 (net), which is easy; the budget is already set out month by month, and all you enter for income is $3000.

But what happens if it’s weekly?

You earn $750 per week (Net); it sounds the same as the above.

Wrong… there are 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 at $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 pay monthly.

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 affects 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 every month, as you won’t have the advantage of having extra pay.

One great reason to convert everything to monthly payments is to smooth out the ups and downs and give you a more stable figure of your actual monthly costs.

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.

Extra Pay Periods Throughout The Year

**How To Make Your Budget Calculations Work**

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

January
February
MARCH
April
May
JUNE
July
AUGUST
September
October
NOVEMBER
December

Weekly – 52 pay periods per year (53 in leap years)
Biweekly – 26 pay periods per year
Monthly payments – 12 pay periods per year
Semi-monthly payments – 24 pay periods per year

Related; How Many Pay Periods Are In A Year

Calculating Your Budget Using The Smallest Income

I know I told you to convert to monthly, but always calculate your budget based on your smallest monthly income (i.e., basic hours, no overtime).

You’re already in trouble if you have to work overtime to make ends meet.

I calculated my income (basic hours) based on my two pays per month (I’m paid bi-weekly) and consider the extra pay period occasionally as a bonus.

Our mortgage payments are weekly but converted to monthly for the budgeted costs.

So, we’re putting a little away for those months every month, and I have to pay an extra mortgage.

When the time comes, I already have the money put aside and am ready to make 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 these costs into our monthly budget and set them aside for hassle-free bill paying!

So before you jump into the finance, ensure you are making the correct budget calculations so you’re not getting skewed figures.

Discussion: Why do you think budget calculations are important?

Please leave any comments below.

Thanks for reading,

Mr. CBB

Zayba Ramoutar May 3, 2012 At 8:40 pm

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

- Canadianbudgetbinder May 3, 2012 At 8:59 pm
  
  Bill is in the mail hahahah cheers Zayba.. thanks as always for your support! Mr.CBB
  
amie pepper May 3, 2012 At 8:41 pm

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!!

- Canadianbudgetbinder May 3, 2012 At 8:58 pm
  
  What is it that you do if I might ask? Thanks Amie! Mr.CBB
  
Penny Anda May 3, 2012 At 8:43 pm

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.

- Canadianbudgetbinder May 3, 2012 At 8:58 pm
  
  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
  
Jen P May 3, 2012 At 8:50 pm

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

- Canadianbudgetbinder May 3, 2012 At 8:57 pm
  
  Ya ya but hey you had my strict attention for days on end so you got the personal luv! Cheers Jen! Mr.CBB
  
Joanna Cheevers May 3, 2012 At 8:56 pm

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.

Jodie May 3, 2012 At 9:02 pm

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!!!

- Canadianbudgetbinder May 3, 2012 At 9:12 pm
  
  That is so true hence why it’s important to think about what one wants as goals when designing a budget. Cheers Jodie!
  
Barbara Edwards May 3, 2012 At 9:02 pm

Some super tips posted. Thx

- Canadianbudgetbinder May 3, 2012 At 9:11 pm
  
  Thanks Barbara! Mr.CBB
  
Wendy LeDrew May 3, 2012 At 9:07 pm

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

- Canadianbudgetbinder May 3, 2012 At 9:08 pm
  
  Blahhhhhh… hahah.. see post at FB to you’… thanks for your lovely comments Wendy…I’m glad you like them. Cheers Mr.CBB
  
Tina S May 3, 2012 At 9:27 pm

Thanks for sharing 🙂 I love reading your posts

deaconhayes May 3, 2012 At 11:45 pm

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!

- Canadianbudgetbinder May 4, 2012 At 7:53 am
  
  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
  
  - deaconhayes May 4, 2012 At 8:58 am
    
    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.
    
    - Canadianbudgetbinder May 4, 2012 At 10:08 am
      
      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
      
deaconhayes May 4, 2012 At 11:27 am

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!

- Canadianbudgetbinder May 4, 2012 At 11:34 am
  
  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
  
hvanblokland May 5, 2012 At 8:39 pm

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