If you’re wanting to get out of debt, save money for a vacation, or even begin investing in a retirement fund, a budget is the first step. Here are some basic steps to help you on your journey to financial freedom.
How to Start Your Budget
- 1- Write down what matters to you. What are your goals? What do you value? Make a list and put it in order from first priority to last priority. Here is your chance to dream big, don’t skip penciling in that dream trip to Ireland that you’ve always wanted to take! If it’s something that matters to you, write it down.
- 2- Breaking down the goals. Now that we have some things on our goals list, think about what you want to accomplish in the next three months, six months, one year and three years. Be specific. Keep in mind that these are goals, not deadlines.
- 3- Determine your monthly income. There are basically two types of income, dependable and extra. If you’re on a salary and your income never changes from pay period to pay period, that’s dependable. If you’re a freelance writer or work a second job on the side that fluctuates, that’s extra income. For example, if you make between $1500 and $2000 a month, write down your minimum monthly income. That’s your dependable income. The extra will be spread around accordingly later.
- 4- Identify your expenses. Take a look at your online banking for the last couple of months and identify all of your regular expenses, compare these with credit card statements. Don’t forget your fixed expenses like mortgage, utilities, car payment and student loans. Find your flexible expenses like food, clothing, entertainment, things that can vary from month to month. Now is a good time to really examine your spending. Do you really need a subscription to two separate online television streaming networks? Take a hard look at where your money is going and decide what is important and what can be trimmed. Next, identify other yearly, quarterly or semi-annual expenses such as taxes, insurances, car maintenance, things like that. If you’re interested in keeping your budget digital, now is the time to start exploring personal finance software programs that offer a budgeting feature to help you track all of your expenses.
- 5-TaDA!! Time to create the budget. Remember that a budget is a spending plan, it’s a tool to help you actually see how much money you have, and where it goes. It’s a tool, not a torture device. Always meet your needs first, rent, food, bills, and any that is left over goes to the want list; Entertainment, clothing, extras. If your income is not enough to cover your expenses, it’s time to adjust your spending and decide what expenses can be reduced.
- 6- Don’t forget to save! Saving money is a great way to protect yourself financially. Save as much as you can every month, even if it’s a very small amount. It will make a difference. I recommend opening up a separate checking account and having the amount automatically deposited in every pay period. When I first started saving, I went so far as to go to a bank branch I never used and opening up an account there, that way, it was out of sight, out of mind.
A Budget Can Be Easier Than You Think
Remember that budgeting isn’t something that needs to be a chore, it is a tool to help you succeed. Take your time, start small and before you know it, you will be a pro!