A goal without a plan is just an idea. This is just as true for your financial ambitions as any other. Whether you want to save for the vacation of a lifetime or ensure you have enough money to last a lifetime, a budget will get you there.
And yes, we know making and sticking to a budget can be a tedious process. However, there is an easier way to go about it.
Take a look at these simple steps for creating a solid budget
Step One: Establish Your Financial Goals
Of course, you want to be able to live within your income, free of money worries each month, and that’s a good goal. You should also look toward establishing an emergency fund for your household to cover eight months of living expenses, as well as saving for vacations, major purchases and the like.
Having financial goals is just as important as establishing the budget itself. This way you’re chasing a carrot, rather than being prodded by a stick. Set dollar amounts for each goal and give yourself a timeframe within which you want to amass them.
Step Two: Calculate Your Monthly Income
Before you can know what to allocate where, you must determine what you have to allocate in the first place. This should be based on your take home (or net) pay, rather than your gross (before tax) pay. This will give you a more accurate monthly figure with which to calculate.
Take all of your forms of income into consideration; side jobs, part-time jobs, spousal support, child support — all of the steady money you have coming into the house on a monthly basis. If you are self-employed and your monthly income varies, average your last three months of payments to come up with this figure.
Step Three: List Your Expenses
Gather all of your bills and create a list, noting the amount of the payment required each month.
This should include your mortgage (or rent), utilities (such as phone, electricity, gas, internet, water and garbage) car payments, insurance payments (all types), groceries and household expenses, credit card bills, student loans, personal expenses for clothing, as well as dry cleaning and hygiene (such as haircuts and the like).
Monthly contributions to your savings and investments should also be included in your monthly budget planner.
Step Four: Compare Your Income to Expenses
Ideally, the number you get from step two will be higher than the number you get from step three. Things will be a bit tougher otherwise — but still doable if you stick with us.
If you have a surplus, you can earmark the extra funds to amplify your savings, pay down credit card debt faster — or both. If you have the opposite situation, look for opportunities to dial your spending back to free up the cash to attain your goals.
Step Five: Adjust Expenses as Needed
Going back to step three, you’ll see some of your expenses are fixed. In other words, they are what they are and there’s nothing you can do to change them short of moving into a less expensive home and getting a more moderately priced car. However, you can look into ways to make your car insurance more affordable.
Purchasing your own equipment, choosing a less expensive bundle of channels — or eliminating them altogether in favor of streaming — can adjust cable bills downward. If you still have a landline phone, you can jettison that as well. Purchasing your own equipment and choosing a more affordable plan — one still capable of serving your needs — will reduce Internet bills.
Changes in your shopping habits can decrease grocery costs, fuel bills and entertainment expenses. Eating at home, foregoing that morning Starbucks and taking your lunch to work will free up cash as well. Clip coupons for items you purchase regularly, shop at a less expensive grocery store, drive only when absolutely necessary and buy used instead of new. In other words, implement every possible method of reducing your spending so you can live comfortably within your budget.
With that said, it’s important to leave yourself some room for entertainment and fun so you can avoid becoming frustrated. Still, look for ways to do this while spending less. Invite friends over, rather than meeting them at restaurants. Take the kids to the park instead of the movies. Rent DVDs at Redbox for $2 instead of paying $5.99 to stream them, or even more to see films in theaters.
Step Six: Log Expenditures and Review Monthly
Far from a set it and forget process, your budget will be a living, breathing entity. It will expand and contract right along with the demands of your day-to-day living. However, if you’ve been realistic with your numbers and done everything possible to reduce your costs, you’ll find it works quite well.
Take a look back each month to see how well you’re doing. If something is consistently off, look for ways to adjust it by moving things around a bit. Ultimately, you will see growth and progress toward your goals—and that will inspire you to dig in and stay the course.