You might dread the idea of using a budget, but creating a budget empowers you to take control of your money rather than your money controlling you. It is possible to plan for your future, have fun now, and achieve your financial goals.
Creating a SIMPLE BUDGET will help you stay on track to creating an amazing future!Just follow these steps. You don’t have to complete all the steps at once or even in a week. Take your time and accomplish your budget one step at a time.
Step 1: Setting Clear Financial Goals
Step 2: Understanding Your Monthly Income
Step 3: Calculating Your Monthly Expenses
Step 4: Creating a Monthly Budget Plan
Step 5: Zero-Based Budgeting
Step 6: Building an Emergency Fund
Step 7: Paying off Debt
Step 8: Planning for Short and Long-Term Goals
Step 1: Setting Clear Financial Goals
The first step in creating a budget is understanding what you want to achieve. Whether it's building an emergency fund, paying off credit card debt, or saving for a down payment, setting clear financial short-term goals and long-term goals will help you take control of your budget and your spending even when you don't want to.
WHAT ARE YOUR FINANCIAL GOALS?
Do you want to get out of debt?
Do you want to have a good emergency fund?
Do you want to take a vacation?
Are you hoping to save for your kid's college?
Take a few minutes to write your dreams down. Don't just write what you hope to do, write what your dream is! Take it a step further and write it out on a large piece of paper and hang it up where you see it every day! Ask yourself each day if you are doing at least one thing to move toward your dream!
Step 2: Understanding Your Monthly Income
To create an effective budget, you need a clear understanding of your monthly income. This includes your take-home pay, any additional sources of income, and any extra money you may receive on a regular basis. Most of the time when someone asks you how much you make, you state your total income. While it might be true that your salary is a high amount, after taxes, insurance, and other deductions your net income might be lower than you think! When planning your budget you need to think of your net pay to make sure you have enough money to cover your bills.
Look over your paychecks for the last 6 months and enter them into the INCOME TRACKER.
Step 3: Calculating Your Monthly Expenses
The next step is to break down your expenses. Categorize them into fixed expenses, expenses that do not change amounts(like rent or mortgage, utilities, and insurance) and variable expenses, expenses that are different each month, but you spend on a monthly basis (such as groceries, clothing, dining out, and entertainment).
You might have no idea how much money you actually spend on your expenses. This will take the longest to figure out, but it will be worth it!
Use an EXPENSE TRACKER and go back through your spending (bank account, credit card, automatic payments) and write down what you spend. You will probably be shocked!
Calculating your monthly expenses can be a good time to evaluate what you spend. Maybe it would be good to give up your gym membership for a season. Do you have enough clothes that you could lower that expense amount for a year to increase savings?
This step is probably the most crucial step to finding financial peace! If you don't know what you really spend, you will never have financial control!
Step 4: Creating a Monthly Budget Plan
With a clear picture of your income and expenses, it's time to create a monthly budget plan. Allocate a specific amount of money to each category, ensuring you cover all essential expenses while leaving room for a savings account, any debt repayment, and category spending (vacation, clothing, etc).
Try this GOOGLE SHEET BUDGET PLANNER for a comprehensive system that will help you take control of your finances.
Step 5: Zero-Based Budgeting
Zero-based budgeting means that every dollar has a purpose. This budget rule means that you put EVERY PENNY of your entire net income somewhere, leaving no room for untracked spending. This approach gives you complete control over your finances and ensures every dollar is working toward your goals.
Do not just take $100 out of your paycheck for clothing! Put $100 into the clothing category and then spend from the category.
The only thing that should come out of your paycheck are your monthly fixed bills. The rest of your expenses will come from your categories. If this is the only new budget rule you set up, it is the most important one! Tracking your spending will change your life!
In the beginning, it could be hard to adjust to this new way of budgeting. Someone once asked if it feels like I am being given an allowance. I don't see it that way. Every successful company has a budget for their teams to spend. The great thing about tracking is that you can change it from year to year! If you feel like you barely had enough money for clothing one year, adjust and add enough to the category where it doesn't feel like you are limiting yourself.
Also, don't compare yourself to other people! I couldn't care less about clothing. I am happy to shop clearance and at thrift stores. The category that I want to have a large amount in, is traveling. Your budget will look different from anyone else. You just need to make sure that you give every dollar of your paycheck a job!
Step 7: Paying off Debt
If you have credit card debt, school debt, or another type of high-interest debt, it's important to include a plan to pay it off in your budget. Allocate a portion of your income specifically for debt repayment, and consider using any extra money to accelerate this process. Like that gym membership, you canceled because you can run outside and get weights to use at home!
When you are coming up with a plan to pay off debt, don't leave this for last and hope that you have a little to put toward your debt each month.
Come up with a manageable plan to pay off your debt. We had $11,000 in debt we wanted to pay off. We had a goal to do it in 3 months. I got a big posterboard and wrote $11,000 in a big blue marker across the top. My goal was to put something towards that debt every day even if it was $5! I came up with a way to spend less on groceries, plan activities that cost nothing with our kids, and make homemade gifts for a month. Because I was so focused on that one debt, we paid it off in 6 weeks without extra jobs or income!
Step 8: Planning for Short and Long-Term Goals
In addition to your monthly budget, consider your short-term goals and your long-term goals. Whether it's saving for a vacation (short-term) or planning for retirement (long-term), setting aside a portion of your income toward these objectives will set you on the path to financial success.
*Before you save for your short-term and long-term goals make sure your debt is paid off and you have an emergency fund.
Save for your vacation while you are saving for retirement. Don't leave all that compound interest available in a 401K behind!
We have found we can take amazing vacations by using credit card points. If you are looking to start using points for vacations, try Capital One Venture.
(Disclaimer: if you use the link to the cc, I will get points added to my travel card at no cost to you.)
Regular Monitoring and Adjustments
Your budget management should be treated like a second job. Regularly review your spending habits and adjust your budget as needed to stay on track. If you have a little time each week to manage your budget, you can keep it in control and it won't be hard. Plan out the same time each week to go over your budget. Taking time each week will keep things from feeling overwhelming.
It is also a good idea to download yourGOOGLE SHEET BUDGETto your phone. Every time you make a purchase, enter it into the correct category to stay on top of your spending.
Creating a personal budget is not just a good idea; it's an important step toward achieving financial stability. Build a solid financial foundation, and work toward realizing your financial dreams.
The first step is always the hardest! Remember, it won't be perfect and you will constantly be adjusting, but it is time to make your money start working for you rather than you working for it!
* I am not a financial advisor. This is not financial advice. I am sharing what I have learned over the past 20 years about getting my finances under control, paying off debt, and saving in hopes that you will be inspired that getting your financial life under control will change your life!
