It’s time to take the next step in your Financial Fitness Plan and build your budget. Yes, budget. A word that often fills people with dread and anxiety. However, budgeting isn’t meant to be scary or make your life miserable. It's a way for you to take control of your finances so that you are maximizing every cent that you make. Because there isn't 'one size fits all,' perfect budget, it may take some trial and error to figure out what works best for you. Here are some ideas to help you get started.
FIGURE OUT TAKE HOME PAY
People often overestimate what they are able to afford because they don’t account for taxes or other deductions. You can find this by taking your gross monthly incomes and subtracting things like federal and state income tax, Medicare, Social Security, and insurance premiums. All the money you have left over is what you will use as the foundation of your budget.
TRACK YOUR SPENDING
Do you ever find yourself wondering where all of your money went each month? You're not alone. Prior to creating a formal budget, you'll need to track your spending for a month so you can find out what and where you're spending. Every purchase, regardless of how small, should be recorded. You can either do this on your phone or keep a notebook with you. Go through past bank and credit card statements to see if there are any patterns. Hold yourself accountable. All of those "small" purchases that you don't think matter can really start to add up over time.
If you read our post from last month, you already have a list of goals ready to go. This is an important step because it’s difficult to create a budget when you don’t know where you want your money to go.
CREATE A PLAN
Start with your fixed expenses. This includes items like rent or mortgage, car payment, and insurance that stay the same every month. For variable expenses, such as groceries, gas, and entertainment which can vary from month to month figure how much you spend on average. For the non-necessities, give yourself a limit on how much you'll set aside for that expense.
Don't forget some of those longer term goals such as an emergency fund, saving for a vacation, or paying off student loans. These need to be included in every budget you create.
Budgets aren’t meant to be stagnant; they should adjust and grow as your situations change. Your budget shouldn't control your life, you control your budget.
Most importantly, stay patient. For many of us, changing our spending habits can be difficult. According to a study from the University College London, it takes about 66 days to create a new habit. Therefore, you shouldn't expect any changes overnight. So if you slip up here and there, cut yourself some slack and keep moving forward.
Check out some free tools to help you with your budgeting HERE.
"A budget is not just a collection of numbers, but an expression of our values and aspirations."
– Jacob Lew
Come back next month for a new money work-out to help get your finances in shape this year.