Step 1: Estimate your monthly income – If your income varies, the simplest method is to take an average income from several of the most recent months. If you have a year or more to look back on, you can use that data to determine income by month or season instead of using an average.
Step 2: Determine your monthly fixed costs – These are costs that are the same each month, like subscriptions. Yearly or multi-month costs can be divided by the number of months they cover or simply add the total to the month they are paid. Your compensation should be one of these fixed costs.
Step 3: Estimate variable costs – These are the costs that change each month. The simplest method is to take an average from prior months like for variable income. Again, if you have a year or more to look back on, you can use that to determine variable expenses by month or season instead of using an average.
Step 4: Determine a set amount for emergencies – This is how much money you need to leave in the business each month to cover unexpected expenses. This can also be a dedicated savings account that you put money into.
These are simple steps to get you started, but every business has its own unique challenges with budgeting. We can get into the nitty-gritty details of your specific budget by scheduling a one-on-one consultation.