Are you ready to build your first budget? It may sound like an overwhelming task–determining what your finances are looking like. However, the truth is budgeting is another major step towards financial freedom and reaching YOUR goals.
Something to consider as you create your budget: start by asking yourself why you want a budget in the first place. Have you seen it work for someone else? Do you want to know exactly where your paycheck is going? Do you want to set and reach financial goals personally, or as a family?
Whatever the reason may be, keep it in mind as you build your budget. Not only will it be helpful in shaping your budget and reaching your goals, but it can add motivation as you implement your budget.
Knowledge is power when it comes to finances.
The most important thing about a budget is to simply know where you stand. Identifying your actual spending power, and what expenses you are responsible for, can help you feel more in control of your finances. Whatever the amounts, you can be more prepared for upcoming bills and responsibilities.
Building your Budget:
- The first step in building your budget is to calculate how much income is available to you every month. Most people have monthly bills, so a budget based around a monthly schedule is usually the most practical. However, set up your budget the way it is most helpful for you. A budget gives you the chance to acknowledge how much income will usually come in. “Income” on your budget should be recorded after taxes are taken out, or for those who are self-employed, after what will be taken out for taxes.
Especially for those who are self-employed, incomes can look different from month to month. If this is your situation, take an average, or play it safe and look at the minimum you can plan on for the month.
- After you have your income amount, note all of your expenses. Almost all expenses fall under one of three categories:
- Fixed Expenses: These are the expenses that you know you will have every month, and usually don’t change. They are also usually the top priority. Housing, a car payment/transportation, your cell phone, utilities(though they can fluctuate some), cable/TV, insurance, etc. are all fixed expenses.
- Flexible Expenses: These expenses can fluctuate, but are also still extremely important to account for. Things like groceries, eating out, entertainment, and necessities, are all flexible expenses.
- Occasional Expenses or Periodic Expenses: These are the ones that come up every so often. Things like buying new clothes(depending on how often you purchase new clothing), gifts for family around the holidays, new tires for your vehicle, your gym membership if it is paid annually, a family vacation, etc.
- Once you know how much income you can count on, and where your money is going, evaluate how much money is left over after the fixed expenses are paid, and then the flexible expenses, and finally, the occasional expenses. If your income doesn’t cover your expenses, what could be eliminated or altered? Things like groceries are necessities, but there are ways to save on groceries to help lower that cost. Be willing to adjust your plan as you get a better picture of your finances.
Is there money left over? Congratulations!!! Now is a great time to start a savings account! One large misconception is that a savings account must be a large sum of money. A great goal to have is to gradually build up to $500, or $1,000. Whether you put $5, or $500, dollars in a savings account each week or month, create a habit to save a set amount.
- After evaluating where you stand, create a goal of where you want to be, and put your plan into action. Be sure to reevaluate frequently, and adjust as needed. There may be expenses you didn’t realize you needed to address each month or ways you didn’t know you could cut down on expenses. Be willing to be flexible as you create a plan to reach your goals.
A few extra tips:
- Put your “why” somewhere where you will see it every day. It could be anything from being out of credit card debt, to buying a home, or taking your family on a vacation. Put a card or image with it somewhere where it can remind you why you decided to build your first budget and are creating the financial lifestyle you want.
- Don’t know where to start? It can be difficult to track what you spend in a month, generally. One idea is to simply track what you spend for the next month. You don’t have to change any spending habits, but account for all the money coming in, and where the money is going. For example, everything from tracking when you eat out, to when you pay the electricity bill. You could track it by looking at credit card and bank statements, and then adding them into your own record, or you can look at apps and programs like mint.com. However you keep track, find a system that is easy to use and works for you and your lifestyle.
We know though that even when we do budget and plan, unexpected payments still come up. We’re here to help when you need cash fast. Don’t hesitate to reach out to us online or by calling us at 855-374-5626.
|*These articles contain opinions from the Cash Factory Team. You should always check with your financial experts before making decisions on your financial future.|