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Setting a budget, question

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  • Setting a budget, question

    Does anyone use tax returns to help set a household budget or as a guide for past budgets? If so, which numbers do you use? Do people use taxable income, less taxes paid as their guide to match or stay under when forming a budget (including savings in the budget)?

    Any advice is welcomed, I'm starting a spreadsheet for the household budget for the first time today.

  • #2
    Example for a Monthly budget...

    Net Income
    Pay 1
    Pay 2
    total Pay

    Expenses
    Mortgage
    Car
    Grocery
    Gas
    Cable
    Phone
    etc
    Total Expenses

    Savings = Total Pay minus Total Expenses..

    Hopefully it's positive.

    I do a spreadsheet, but you can always look into You Need a Budget, Mint, etc.

    Comment


    • #3
      Originally posted by Wisedog View Post
      Does anyone use tax returns to help set a household budget or as a guide for past budgets?
      I'm sorely confused as to why you'd use a yearly tax return -- in which there are lots of deductions -- for calculating a monthly budget instead of using your monthly income.

      Are you self-employed, or something?

      If so, which numbers do you use? Do people use taxable income, less taxes paid as their guide to match or stay under when forming a budget (including savings in the budget)?

      Any advice is welcomed, I'm starting a spreadsheet for the household budget for the first time today.
      When calculating your monthly finances, your EOY AGI matters not a whit. It's what you bring home every month that matters, because that's what's filling up your checking account, which is where your expense payment come from.

      (If your "monthly" income is highly variable -- quarterly commission checks, for example, that vary by season -- then what I'd do is sum them up and divide by 12. Actually, I'd divide by 14 to cushion in case of a down year.)

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      • #4
        AboveJluke is good; I also use a spreadsheet for my budgets.

        One thing you may want to do is look over a few months' (or a year's) credit card statement to catch some semi-regular high price purchases (e.g. property tax).

        The budget is a living document and gets changed as time goes on.

        We used to have a monthly household budget, but stopped in 2005. Currently, we have no household budget, just annual budgets for specific activities -- usually means wife puts me on a budget on things I like to do : (.
        Last edited by sv2007; 05-18-2016, 10:11 AM.

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        • #5
          When looking at my monthly budget, I just use the amount of money I see in my paychecks, because that's exactly how much money I have to work with in any given month. I don't worry about what's going towards taxes and what's going to health insurance because in the month at hand, those things are beyond my control. I typically use Mint for looking at budget numbers on a monthly basis.

          For longer term planning, I have a Google Sheet that calculates my exact taxes and adjusts depending on income, tax deferred retirement savings, health insurance costs, and such. It's good for answering questions like: "What if we wanted to live on just one income?" "What if we increase retirement savings?" "What if someone gets a raise?" On that spreadsheet, my hypothetical budget looks something like this:

          Income (gross income - income taxes)
          Expenses
          Health Insurance
          Mortgage
          Property Tax
          Utilities
          Groceries
          etc.
          Savings
          IRA
          401k
          General

          When everything is sorted out Income - Expenses - Savings = 0.

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          • #6
            Originally posted by phantom View Post
            It's good for answering questions like: "What if we needed to live on just one income?"


            Otherwise, it's a very wise post (since I agree wholeheartedly, and do something very similar).

            "What if we increase retirement savings?" "What if someone gets a raise?"
            My spreadsheet has a more pessimistic, focusing on job loss: how long can we survive on existing cash if I, the DW or both lose our jobs. What would we have to cut and where, what can't be cut, etc.

            Of course, it works just as well in "what if" calcs on raises, etc.

            (The question of what can't be cut is why I prefer a long mortgage: while you have the excess cash, there's nothing to stop you from paying it off as if it were a 15 year loan, but in case "something comes up", you can safely drop down to the legally binding amount.)

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            • #7
              Originally posted by Jluke View Post
              Hopefully it's positive.
              I sure hope so!!

              Comment


              • #8
                Originally posted by Nutria View Post

                Are you self-employed, or something?
                Yes, I am.
                Is that a problem? Does it complicate the budget?

                Comment


                • #9
                  Being self employed does complicate a budget because you don't know how much you will bring at any given month or weekly. It does mean however, you have to be very detail and accurate how much you should budget for, not go over spend. Make sure you have enough cash reserve to offset big expenses on certain months, like summer, b-days, or holiday season.
                  Got debt?
                  www.mo-moneyman.com

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                  • #10
                    Originally posted by Wisedog View Post
                    Yes, I am.
                    Is that a problem? Does it complicate the budget?
                    Budgets "like":
                    • a stable cash flow, and
                    • stable expenses.


                    It just makes planning much easier.

                    How consistent is your business cash flow and rate of expenses? (Is your business already following a budget?)

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                    • #11
                      My husband was self-employed with seasonal ups and downs so we would always base his income on his tax return. We would divide his annual taxable income by 12 and that would be his monthly pay. Then when we would do the next tax return we use that figure to divide by 12. Made budgeting so much easier because whether we were in high or low season we were always able to live comfortably enough and have enough to live off

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                      • #12
                        Originally posted by VS_ozgirl View Post
                        My husband was self-employed with seasonal ups and downs so we would always base his income on his tax return. We would divide his annual taxable income by 12 and that would be his monthly pay. Then when we would do the next tax return we use that figure to divide by 12. Made budgeting so much easier because whether we were in high or low season we were always able to live comfortably enough and have enough to live off
                        Good to know.

                        Depreciation of capital assets would materially effect (reduce) your taxable income, but not your cash flow. I'm sure that there are loopholes which would have similar effects, depending on what field you're in. Thus, your strategy would not work in all cases. OP didn't provide us enough info.

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                        • #13
                          Originally posted by Nutria View Post
                          OP didn't provide us enough info.
                          Please let me know what else I can provide?

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                          • #14
                            Originally posted by Wisedog View Post
                            Please let me know what else I can provide?
                            How well does your AGI match net income?

                            How consistent are your cash flow and rate of expenses?

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                            • #15
                              The first step is knowing what you spend money on, and how much.

                              I suggest signing up with one of the expense tracking sites (ynab.com, mint.com, etc). Have the site monitor any account from which expenses are paid (CCs, checking accounts, etc).

                              If you haven't done this before, it's likely to be an eye opener.
                              seek knowledge, not answers
                              personal finance

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