Create a Budget
Step 1: Look at your bank statement for the previous month to capture how much you have already spent and categorize it. Examples include groceries, gas, eating out (this includes fast food and coffee breaks), entertainment, miscellaneous, etc. This will give the reality of where your money has been going. Some online bank accounts will categorize this automatically but make sure each item is in the correct category for you.
Step 2: Determine if any of those categories are out of line with your goals/values and set a budget on how much you plan to spend in each category going forward. For example, if you spent $400 last month on eating out, ask yourself if that is that too high a percentage of your budget.
Step 3: Fill out a budget form (many templates available online) or find a budget app. The idea is to spend/categorize ALL your monthly income so that you know where it will go before you receive it. This not only includes spending but savings and debt repayment as well. It’s important to make a miscellaneous category too, there will always be those random items you spend on that don’t fit into your categories.
Step 4: Track your spending in each category. This should only take about 30 minutes a week to go through each category. You may budget $100 for eating out each week, but how will you know how much you really spent? Some people put cash in an envelope for eating out and when it’s empty they stop. But many these days don’t carry cash and that can be an excuse for not sticking to the budget. Find a system that works best for YOU.
It’s not working! What if you overspend a category? Don’t give up! Try to adjust another category to compensate. It typically takes 3-6 months to get your budget figured out. Every month is different with different expenses like birthdays and one time events. You will figure out how to plan for those better as you keep doing it. Just don’t stop, keep trying!
There are only two components to a budget: what comes in and what goes out. If you cannot change what is going out, then you have to look at what is coming in and how you might be able to change that. A short-term strategy can include working an extra job or completely cutting out things you can live without. Longer-term options may be considering a job change or asking for a raise, but these aren’t easy.
For help with your budget, reach out to a Financial Advisor today!