Whether you’re trying to pay off bills, save for a dream vacation or create a nest egg for retirement, having a sound budget is often the first step toward bringing your financial goals to fruition. While budgeting is often associated with finding places to curb your spending, creating and sticking to a budget can be a fairly painless process with the right plan in place.
These guidelines can help you build, manage and maintain a realistic budget that will set you on the path toward reaching your financial aspirations.
6. Calculate Earnings
First and foremost, when you’re looking at your financial situation you gotta be honest with yourself. Base your budget on your net income — the money you actually bring home after taxes and any other deductions. This way you know how much money is touching your pocket, so you can really understand how much you’re working with currently. This is the starting point for any successful budget and critical in creating a long-term financial foundation. You can set this up on a monthly or bi-weekly basis.
5. Track Expenses
Once you know how much money you’re bringing in each month you need to keep track of how much money you have going out as well. Track your spending manually to really see where your money’s going each month. It doesn’t matter how big or small the amount, if money is changing hands and you’re involved, write it down. Personally, I use a ledger. It’s a little black book, small enough to fit in my pocket or a bag. Each week, I write down how much money I start the week with, and then I write down all of my financial transactions for the week on the page — buying gas, lending money, groceries, etc. This not only allows you to get a real visual of what you’re spending, but the physical task of actually writing down how much you’re paying for something — just below all the other purchases you’ve made that week — can help to deter you from unnecessary spending.
4. Categorize Spending
Once you’ve started keeping track of your spending, you’ll likely start to notice some patterns and habits. Some things are more important than others, and it’s important to know what you want to spend money on versus what you need to spend money on. First things first is the essentials. Your rent (or mortgage if you’re ballin like that), your utilities, and your car payment are generally the main things in the essentials category that aren’t really in your control. Just below that are the things that are important, but also flexible. This is where you’ll find expenses that you have more control over, like subscription services and your groceries. Look over your budget wisely and get a solid idea of what you consider important and what could be done away with — you likely don’t need subscriptions to Netflix, Hulu, and Amazon Video on top of your cable package.
One thing I’ve done to help manage household expenses is create a spreadsheet of my most common purchases broken down into two categories: monthly expenses (groceries, bills, etc.) and quarterly expenses that I buy roughly every three months (toilet paper, laundry detergent, etc.). Since I know these are common purchases, I took a trip to the store and actually priced out each item so I could add their prices into the spreadsheet too. This also gives a good way to see when stores raise prices and compare with competitors.
Lastly, look over your spending habits and see what extra expenses you’re creating. These are things you can live without, like fast food, candy at the gas station and random 2 a.m. purchases from your phone.
3. Set Goals
If you’ve gone through the hassle of examining your finances, then chances are you’ve got something in mind that you want to save up for — A new TV, a cruise, or even a new car or home. Once you’ve gone through the trouble of figuring out your financials you can see how much money you can put into savings for these things. Make sure that your goals are specific, measurable and timely. Ex: I want to save $XXX.XX by December 1 for the deposit on a cruise. With this, you know exactly how much you plan to save and how much time you’ve given yourself to make it happen. The best part is knowing the awesomeness that’s on the other side of that finish line.
2. Stick to It
You’ve assessed your spending habits. You’ve cut back on the nonsense. You’ve made financial goals. Now, the hard part is sticking to it. One of the hardest things to do is maintain discipline when you’re only accountable to yourself, so remind yourself of your goals often and remember that the minor sacrifices you make today will reap great rewards in the future. One saying that’s helped me avoid financial pitfalls is “use it up, wear it out, make it do, or do without.” If I didn’t need it, I didn’t buy it.
1. Make Necessary Adjustments
André 3000 once told us we “could plan a pretty picnic, but you can’t predict the weather,” and those wise words ring true when it comes to your wallet. Life happens. Cars break down, bills go up, and sometimes people just slip — and that’s ok. If you come to a point where your budget doesn’t meet your needs then it’s time to call an audible. Revise your budget and adjust where needed to stay on track. Along the way, new expenses may arise and unforeseen issues will likely occur — and if you have kids...tough it out — but don’t let these stop your pursuits of a better financial situation.
Nick Bailey is a forward thinking journalist with a well-rounded skill set including writing, design, and photography. Nick now resides in Austin, TX after earning a degree in Mass Communication with an emphasis on journalism from Texas A&M University—Commerce.