If you've read the intro to Step 4, you know I'm passionate about personal budgets. Which means that even though I'm not looking over your shoulder, I want you to imagine that I AM looking over your shoulder. I want you to take this step dangerously seriously. I want you to understand your finances, look your student loans in the eye, and tell the world how much money you spend on streaming subscriptions, or fancy chocolate bars, or that gym that you keep meaning to go to. I don't want you to stop buying that chocolate, but I do want to make sure you know how much money it costs, and I want you to decide if that's what you want to be spending your money on. Ready? Let's do it.
In this step you will need
Your personal goals from Step 3
A list of your monthly expenses
A budget spreadsheet (I made this super simple one that has some of my numbers in it as an example, but you can find one anywhere online)
The goal of this step
To determine how much money you need to take home each month
15-45 minutes (more if you've never done this before)
Open up your budget spreadsheet and enter ALL of your monthly expenses.
Here's a list to help you brainstorm:
Mortgage, Rent, Loans (student, car, home equity), Insurance (car, health, life), Daycare, Tuition Utilities, Groceries, Eating Out, Clothes, Online subscriptions, Gas, Dog Food
Then add things that come up yearly, and either let the template budget convert them to monthly expenses, or divide each by 12 to see how much you need to save each month to cover them when they occur.
Taxes, Car registration, Winter tires, Fire wood
Nice! Your list should now have most, if not all, things you NEED to pay for in the coming year, or things you have been paying for so far. Let's move on to things that would be nice. In the last column, or Savings Goals if you're on my spreadsheet, add things that you wish for or have heard that you should be doing. These can be things like:
Vacation, Upgrading your car, Saving for retirement, Emergency funds, or Gifts for your loved ones
Look at your personal goals for the coming year (Step 3). Do any of them cost money? Travel expenses for a vacation? Fuel or coffee money to spend more time with friends? A massage budget? Put that money into your monthly, annual, or savings goals. Do not change your personal goals once you see how much they cost.
You should now have a dollar amount for how much money you'd like to live on in the coming year. Nice!
If you have off-farm income, add that information in the Income tab of the spreadsheet, and subtract it from the total on the expenses sheet.
Done. You now have a monthly or annual cost of living to plug into your business budget. Do not adjust these numbers at this point. We want to start with a budget that allows you to dream big, get that monthly massage, and pay for the good health insurance for your kids. We can bring it up again if we get through the final budgeting step and you feel like you can really let go of or reduce some of these expenses.
Nice job. Really. You just figured out the cost of taking care of yourself, and it's a big deal. Treat yourself to some of that chocolate, and I'll see you in part 2: Infrastructure investments.
Taylor Mendell. I grow things for people to eat.