Alright, I know what your going to say. Budgeting is not a Side Hustle. Hear me out before you move on and call me names. The object of side hustles is to make money….Right? Well it just so happens you may have money that you were not aware of. What I mean is simple, if you don’t know where you money is going then you don’t know how much money you really have.
The purpose of this blog in particular is to show you how I manage my money. To start, I am not an accountant nor is my education based on finances. The stuff that I have learned, albeit the hard way, has made me a millionaire over time. In my case a lot of time, but still I have achieved what a lot of people have tried to do. I wasn’t 30 or even 40 years old when I made a million dollars. In fact it has only been a few years since I achieved that goal. I was 46 years old when I made my first million. But first you should know something about millionaires. Most if not all of their money is locked into other assets and not liquid or even remotely accessible without great penalty. That is the case with me. My money is locked up in a 401K, Roth IRA, Money Market accounts, and Real Property. All of which is not easily accessible. Now if you have read my About me page, I work full time and make good money and have good benefits. All of which has taken me a lifetime to earn. But I digress.
Lets get back on topic. Lets talk about what a side hustle is and why budgeting in my mind is the best one you can have. First, a side hustle is a job or occupation that brings in extra money beyond one’s regular source of income. I am going to play on the word ‘job’ to illustrate my point. Some people think budgeting and sticking to a budget is one of the worst things you can do on a regular basis. Meaning, most people don’t find any fun or enjoyment in managing money. I have head so many times in my life that managing ones finances can feel like full time job. I have not found that to be true, but I do spend about 2-4 hours a week managing my money. I guess you could say, if it was easy everyone would do it and do it well. That’s probably why there is an entire industry built around managing someone’s money.
Below are my tips on how to begin the budgeting process at home.
I am just going to jump right in. All of the recommendations I make below is exactly what I have done or still do. The first thing I always recommend to people who want to get control of their budget is to identify what comes in and what goes out. What I did was listed all of my income in a Microsoft Excel spreadsheet. Once upon a time, I used all these fancy tools out there but I have found they were not granular enough for me. They might be now for all I know, I have been using spreadsheets for 10 years now so I have my system down and I think its really good and free. Regardless of your preference of a tracking tool, the premise is still the same.
1. Identify Monthly Income
Where was I, oh ya! In an excel spreadsheet I put in one column, all of my income sources. Remember, in a perfect world you will have at least 5-7 sources of income (Thats what millionaires say at least). I have seven categories of income. I will list those as I go. Again, list out your income line by line and add them up. Below is an example of mine:
Monthly Salary – I get paid every two weeks. This presented a slight challenge when it comes to how my “month” breaks down. My month breaks down in 4 week periods, except for two times a year where it is a six week month. Some people have a hard time grasping this concept initially but I have found it is the most accurate way to manage your money to the penny.
Rental Income – I own a few rentals, when I get the rent from my tenants I place that it in its own category (mostly for tax purposes). I will talk more about rental income in another blog. For now, just know it is apart of my overall monthly income.
Remaining Balance from Month Prior – This seems silly but every month I spend every bit of my income and what remains needs to be accounted for in the next months budget as income. For those of you going holy crap “you spend every dime”, much of it goes into savings or paying off my rental property mortgages, etc.
Realtor Commissions – On the side I am a realtor, you can look at my blog about how good of a side hustle that is if you time. Any commissions I earn also go in my budget as income. That has a couple of layers of challenges much like the rental income when it comes to tax purposes.
Child Care Reimbursement – At my job, I have the option of paying into an FSA for daycare expenses. Essentially, I am saving some money by putting funds into the FSA every month and then requesting those funds back to pay for my sons daycare. More to come later on this. I treat it as an income as well since I treat the daycare expense as a fixed expense.
Miscellaneous Income – This is income that I may not be aware of prior to the month that I will receive, like birthday money. I also use this category for when my oldest daughter pays me for her phone bill. Its still income and since I pay the phone bill it is an expense I have to cover.
2. Identify Fixed Expenses
The next thing I do is to list out the fixed expenses in a different column. Fixed expenses are those that will/should remain relatively the same from month to month. For example, car payments, mortgage payments, daycare, netflix, etc. This could be a short or long list. It really depends on your own personal situation. I have at least 15 fixed expenses. I am not going to cover each of them but I will list out the heavy hitters.
Mortgage – Bank wants its money.
Phone Bill – I have a phone bill that includes 5 lines, one of which I get some money back as income. I mentioned that above.
Student Loan – Gotta pay Uncle Sam.
Savings – I try to put money into savings every month. I was taught to pay yourself first, but sometimes that is not possible. I see this as, I need to put something into savings every month no matter what. This is liquid money only. It could be an emergency fund, or saving up for a car fund, etc. I define this as a fixed expense since I put the same amount of money in it every month.
Utilities – this includes trash service, electric, and water bill to the local public utility. I am also able to use this as a fixed expense because I am on what is called level pay. I pay the same thing every month. It changes on an annual basis depending on my years utility usage.
Roth IRA – I need to plan for the future and I do not consider this as a savings, it is retirement money.
Vehicle Insurance – Need to make sure I am legal on the roads.
3. Identify Variable Expenses
Finally, list out the variable expenses. Variable expenses can be tricky but essentially it is everything else you spend your money on. For example, I have 4 categories for variable expenses, those are listed below. We will talk ALOT about the miscellaneous category listed below in addition to the other categories in a later blog because that is where my wife and I still fail. This area is also the most challenging area to maintain a budget on because it changes every single month. You can get this by looking at your expenses for the last few months and average them out, per category.
Gas – Gas changes cost from month to month depending upon how much I drive. That is why it is a variable, however, I can determine a close number to use for budgeting.
Restaurant – I used to have Restaurant and Groceries its own single category but that was a flop. My wife and I would spend all of our groceries on eating out or vice-versa. I found its much easier to track when its its own category.
Groceries – This is for when I shop at a grocery store or if I get something at a convenience store like a bag of chips or some donuts, it will go here.
Miscellaneous – the catch all. There is no way to know what expenses you may have for sure on a monthly basis. This can include my sons registration for a T-ball league, it could be that present you buy for a coworker, this is where you would put the things you have no real category for. I have even placed engine repairs or personal property tax payments in this category.
4. Determine Ending Balance
Now you have your Income and Expenses listed, put the numbers (costs) to them and see if you have any money left over with your current situation for the month. It should look something like below. I have added some random numbers to show proof of concept.
The next blog will break down what you are looking at and how much trouble you may be in. Just kidding! I am sure everything is perfect…….Right!
If you like this blog and would like to see my other side hustles. Please follow this link ‘View All Side Hustles’.