Updated on 01.31.07

# 31 Days To Fix Your Finances, Day 12: A Flexible “Budget” That Reflects Your Reality

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Today is something of a culmination of the first part of the “31 Days” program: it basically ties up all of the goal-setting and evaluation to date into a single document. This document isn’t a set of rules to live by, but a financial picture of who you are and where you can go. Sound exciting? Let’s get started.

Take out a blank sheet of paper, the “time budget” you prepared yesterday, and the approximate hourly wage you calculated earlier. We’re going to use these two pieces to assemble a true budget.

What do I mean by “true” budget? Most of the time when people prepare a budget, it has no connection to their life experiences and their goals. The truth of the matter is that every person is unique, thus every budget should be unique. People fail at following “traditional” budgets because they aren’t aligned to an individual’s lifestyle, goals, and dreams.

The budget you’re about to complete is a “true” budget: you’ve built it yourself, composing it out of your daily life, your hopes for the future, and your dreams for the rest of your life. Most “traditional” budgets expect you to change your life for it; a “true” budget asks only that you don’t forget to plan for your dreams while living your own life.

On the blank sheet of paper, make three columns: one for each budgeted item, one for hours, and one for a dollar amount. We’re going to prepare a monthly budget here, so take each item from the “time budget” prepared yesterday, then multiply that weekly hour number, multiply it by 52 (for the number of weeks in a year) and then divide that by 12 (for the number of months in a year). This is the number of hours of work time in an average month that you’ll devote to each element on your budget.

Now, for the final piece: multiply each hourly amount by your true hourly wage and enter it. This is exactly how much money you’re alloting to spend on each category during the month. For regular bills, this number should be very close to what your monthly bill is; for your extra debt payment and your goals, this is how much you’re going to be setting aside each month for these. The total should add up to a number that is less than your monthly take home salary (remember, you have some extra that you bring home that you use for job-related expenses).

When I first did this, I read through the items and actually shivered. Why? It was the most accurate picture of my financial life that I’d ever seen – and it made it clear to me where I was doing things right and doing things wrong. I had never felt such a connection between a sheet of paper and my life as a whole.

What will it mean for you? Spend some time reading over the sheet carefully and thinking about it. There are countless different conclusions you may draw: maybe you feel that this whole thing is spot-on and is putting you in a position to live your dreams. Maybe you realize how much of your life is spent in the “now” and how little you’re actually spending for the big things tomorrow. Maybe you believed you were planning well for the future, but you see some huge areas for improvement. It’s up to you to figure this out.

Tomorrow, we’ll discuss how to keep track of this budget each month, starting by ensuring that you’re meeting your goals.

Ready? Let’s continue on to the next day.