Do you feel like your finances are out of control? Are you charging too much on credit cards each month? Do you sometimes wonder where you are going to come up with enough money to pay your bills? If any of these describe your financial situation, putting a budget in place could help. Here are five easy steps to take to start the process of creating a budget that you can stick with:
1. Get an accurate picture of all of your income and expenses
The best way to start developing a budget is to begin tracking your current spending. For the next month, track every cash and credit card expenditure. You could use an excel spreadsheet, or any of the online and app-based trackers available (from your bank or a third party). This will give you the most accurate picture of where your money is currently going and will be helpful later in deciding what spending habits you can reduce or cut out altogether.
Create a list of your monthly bills. The names of each bill, the estimated amount ($20 rather than $19.95), and the date it’s due on. Make sure you also include quarterly or semi-annual expenses in your budget if you have them, such as real estate taxes, life insurance, and homeowner’s or renter’s insurance. Write down or enter your monthly income, as well as the total amount of your bill expenses.
2. Figure out your disposable income
Your disposable income is the money left over after your monthly bills have been paid. This is the money that can be spent on your wants, not needs. To figure out your disposable income, add up all of your income and all of your expenses then subtract the expense total from the income total.
Total Monthly Income – Total Monthly Expenses = Disposable Income
If discretionary spending is too high, this is the best place to start cutting items from your budget.
3. Cancel or lower some of those monthly bill expenses
Besides discretionary spending, such as eating out, shopping for clothing or toys and housewares, there may be some bills that can be reduced. You can save more money by cancelling that streaming subscription you don’t use, or look for ways to save on your monthly cell phone bill and car insurance. Many times, you can login to your account online, or call your service providers to ask for current promotions and discounts.
4. Include a savings in your budget
Budget a designated minimum savings amount as an expense. Based on what’s remaining of your income after monthly bills are paid, what out of your disposable income can be moved into your savings? Each paycheck, set aside anything from $25 to $150 (or more) that you are certain can remain in your savings account each paycheck. Having an existing savings may help you prioritize bulking it up for planned or unexpected future expenses.
5. Double check that your budget is realistic
Don’t set your budget (and yourself) up for failure. Trying to trim your budget is good, but don’t try to trim it to the point that you won’t be able to live within that budget. For instance, if you don’t allow yourself any spending cash during the month for eating out, you may find it too restrictive. Then it becomes easier to say “Oh well, I already spent $40 so what’s $30 more?”. Instead of cutting out “fun” expenses entirely, budget them in—but at a lower level than before. Check your bank statement or receipts, can you spend less on that morning coffee run? Do you eat out every day for lunch? Try cutting that down to only eating out once per week—it will save money, and give you something to look forward too during the week.
A great way to help stay on track is to continue to use that online budgeting tool that is linked to not only your banking and bill payment accounts, but also incorporates your progress towards achieving your financial goals and plans. Some website and apps include chart and graphic breakdowns of your monthly spending habits that will give you a better visual than a page of numbers.
One extra tip? Hang a picture or write down what you are saving for (big or small) to stay focused on your savings goals.
Do you have a meaningful goal that seems distant, or don’t know where to start? Our team at Finivi is prepared with comprehensive guidance to help you achieve your financial goals. From budget and savings, to college and retirement planning, and more.
Take a minute to fill out this form or call us at: (508)-870-0440 to find the best way to reach your financial goals!
