The Basics of Budgeting
B-U-D-G-E-T…… Those six letters send people into a panic. Together, they form a word that seems unattainable, restrictive, and just plain hard. But, a budget can drastically improve your life.
The budgeting process doesn’t have to be scary or cause you to live an extremely restrictive life. A budget is merely a spending plan that you create. It’s up to YOU to adhere to it. You can even make adjustments to it as needed or as your situation changes.
A budget is not an exercise at deprivation but a tool to increase awareness of what’s happening with your money!
Why should you budget?
Ask yourself this question: Do you know where your money goes? Seriously, do you have any idea where all of your money is spent? If you answered no, then it might be time to create a budget.
Budgeting creates a framework to help you reach milestones and achieve quantifiable goals. It helps you buy things that you need and want. It’s a tool that helps allocate resources and reduces waste, therefore helping you reach your dream lifestyle.
What are your financial goals?
Think about what’s important to you as you begin to set goals. It’s completely normal to have several goals and for them to change over time. Your financial goals may include paying off debt, saving for retirement, building an emergency fund, or buying a home. Be sure that your goal is realistic and attainable and include it in your budget.
Creating a budget that sticks.
Now that you’ve evaluated your goals, it’s time to create a budget. Follow these steps to build a budget that will ensure success:
- Determine how much money you make. For most people, this is easy to do because they make the same amount of money each month. However, if you are self-employed or earn commissions, this amount can vary. If your income varies, the best approach to determining a budget is to use the previous month’s income. Use your best judgement.
- Document your expenses. Some monthly bills, such as mortgage, rent, and other monthly payments, are the same amount each month. Other expenses vary from month to month but, if not properly accounted for, can completely derail a budget. It’s best to look back over the past twelve months and get an average for each of those bills to include in your monthly budget. Listing every single expense, down to the penny, will help you create a budget that will last.
- Know what you spend. Track everything. This may seem like a grueling process, but it will also be an enlightening one. Tracking spending will open your eyes as to exactly where your dollars are going. Many free apps are available to help you track spending.
- Allocate extra dollars toward your goal. You’ve set goals, so now it’s time to help make them a reality.
- Review your budget. The key to a successful budget is to be flexible. Be sure to review it from time to time and adjust it if necessary. You can shift dollars from one category to another, if needed.
When should I start budgeting?
Don’t wait…start today! Click here to download an interactive budget tool and use the information above to help you build a successful financial plan.