We are in a world where we have immediate access to our balances with our smart phones and online banking many of us have stopped budgeting taking the mentality of if there we can spend it and hope that we can make it to the next paycheck. We are in a place where a report on the economic well-being of U.S. households by the Federal Reserve states that 4 in 10 adults would have difficulty covering a $400 emergency expense. Create your budget and begin to take control of your financial life.
Creating and sticking to a budget is what my most successful clients attribute to their financial success. Having and sticking to a budget puts safeguards in your financial life to help ensure you will have the money you need for the emergencies that arise and for your desired financial life.
What is a financial budget?
As defined by Merriam-Webster dictionary, a financial budget is “a plan for the coordination of resources and expenditures; or the amount of money that is available for, required for, or assigned to a particular purpose.” In simpler terms, this means having a plan for all of the money you make. Everyone has their own beliefs on how to budget, but it really comes down to figuring out the method that works best for you. The simplest way to begins is with this equation: Income – Expenses = +/- savings. The income you make less the money you spend equals the money you save from savings or borrower from savings or other debit instruments.
What is your budget’s purpose?
The first thing in knowing what you are doing is why you are doing it. What are your goals? What do you want your money to do for you? What does your money represent? Are you working for your rainy day fund, paying off debt, a car, a home, retirement? Place these financial goals in writing, write down the why behind each the more detail you can create behind these goals and actually see in writing the more likely you are to stick to them. When starting out on your goal being realistic in what you are saving for in relation to your income within a specific time frame is going to help start the process. Once you have a clear vision on what you are budgeting for you can set up your budget.
What information is needed to create a budget?
Setting up your budget will be the easiest part of the process you will need to know your income, expenses and what you will need to add to savings to reach your goals.
Income. Truly knowing your income, this is your inflow in the income equation, for some this is an easy equation and doesn’t change much from month to month. For others, there may be variation and volatility in their incomes if it’s based on tips or commissions, here I recommend that you track your last two years history to look for seasonal trends. For your income section of the equation, use your net income, what you actually receive into your account after taxes and other items are removed from your pay.
Expenses. Today, it’s relatively easy to see where your money is going thanks to digital banking. Track every dollar with the use of online banking to make things easier many banks have budgeting tools or allow you to download your budget directly to an excel platform where you can get a clear picture on your most common expenses. Once you have a clear picture where your money is going you can see any irregularities and where you can cut expenses to move towards a saving mindset for your financial goals that you have set.
Savings. Now that you know the answer to the question of how much you have left, it’s time for the hard part, following your budget. This is why you wrote down clear concrete financial goals that you are striving for. Start with paying yourself first with the money that you budgeted to your goals. Every dollar counts.
Track and review the process. You will need to continuously track your progress as you move through the process so that you can continually reevaluate your budget and make adjustments as you move along. It is best to review and plan out your next month’s budget before the next month begins. Also as time moves forward, hopefully, your income does as well, often your expenses change with time as well. While you continue to track your expenses and income, make adjustments, and begin to reach your financial goals take the time to reflect and realize your successes.
Let’s have a conversation, how can help each other find better ways to budget. Post a comment, provide a recommendation, or ask a question. Let’s learn together.