Here we are two weeks into 2013 and many of you have received your first paycheck of the year. Did you notice the 2% decrease? Now is the time to budget for the cut in pay and the continued increase in prices. Read on for some budgeting tips and a link to a helpful budgeting form.

As many of you know, the reason for the 2% decrease in your paycheck is because the Social Security Payroll Tax reduction from 2011 expired on 12/31/12. This means that the tax went from 4.2% back up to 6.2%. As Dave Ramsey points out in his article about the tax increase, 2% does not seem like all that much.  But, over the course of a year, it equals $1000 for a family making $50,000 per year. That's a lot of trips to the grocery store or gas station or even a whole month's mortgage payment for some.

In addition to this decrease in pay, you can expect grocery prices to continue to rise in 2013 as well. This double whammy will hit many families hard and your best bet is to lay out a workable budget now. Dave's article offers some good ideas on budgeting and you can even download a free Money Cash Flow Plan budget form from his website at DaveRamsey.com.

Budget Basics

A basic budget shows you how much money is coming in, how it’s being spent and how much you have left over at the end of the month (and hopefully you have some left over!). Developing a budget is serious business and a workable, realistic budget is the key to helping you keep your financial resolutions. Be prepared to sit down with your financial records, a pencil, a calculator, some scrap paper and plenty of chocolate (trust me, you’ll need it). Feel free to work on part of the budget one evening and finish the next night. Creating a budget takes a few hours, but doesn’t have to happen in one long marathon session.

Here are some tips to keep in mind while filling out the budget form.

1. Look over the worksheet categories in the form so you have an idea of what information you will need to gather.

2. Calculate your average monthly income including net employment income, spouse’s income and all other sources of income.

3. Use your checkbook, bills and receipts for the last two to three months to average how much you are actually spending per month on the budget categories listed.

4. For expenses that occur more or less often than monthly, convert the annual amount to a monthly figure when calculating the monthly budget amount. For instance, if your homeowner’s insurance is paid yearly, divide that annual cost by 12 to obtain the monthly amount.

5. Total the income category and total the expenses category.

6. Subtract the total expenses from the total income to calculate your net income.  Dave Ramsey advocates a zero-based budget where you account for every dollar and have no debt or overage each month.

7. If your Net Income is a positive number, good for you! This means that you have money left over at the end of the month after your expenses have been paid. Apply any extra money to paying off debt, increasing your savings, and bulking up your emergency fund. Remember that extra money left in a checking account tends to be spent.

8. If your Net Income is a negative number, then your expenses equal more than your income and it is time to make some immediate adjustments in your spending. You are living beyond your means and it is time to apply some frugal living techniques right away.

9. Update your budget quarterly to see if any changes need to be made and to ensure that you are staying on track. I know that sounds like a lot of updating, but you can see at a quick glance if anything has changed in the categories and make changes as needed. Your budget will let you know right away if you are spending more than you should. “Listen” to it carefully and heed its warning if you are spending too much.

10. Once you have completed your budget, you may need to take the next step to cutting expenses. This involves recording your daily expenditures in order to determine where you can cut expenses and control total spending. Track your expenses, every day, for everything you spend in a month. I know this sounds like an incredibly tedious project (and it is), but it works – I promise. At the end of the month, you will have a crystal clear picture of where your money REALLY goes and what non-essential expenses you can cut immediately to get to a positive net income.

If you are struggling with debt, you may want to look into the Dave Ramsey program Financial Peace University. I know a number of you here on the blog have taken his class and read his materials. It is life changing for those who commit to getting out of debt. Many churches in the area offer his classes and you can find out more information at DaveRamsey.com.

Have you already seen a decrease in income for 2013? What steps are you taking to make ends meet more comfortably this year?  Please share your thoughts so we can help each other to be better stewards of our hard-earned money in 2013!