7 Simple Ways To Setup Your Budget
Step 1: Set Realistic GoalsGoals will help you figure out what you want to do. Ask yourself: Where do I want to be in a year? How about two? Let’s get crazy and go for five years? 10 years? Find out what’s important to you. Some potential goals could be:
- Pay off credit cards
- Save three months of rent/mortgage
- Building up savings
- Buy new camping supplies
- Save up for a down payment
Step 2: Identify Your Income and ExpensesTake a look at your next check as closely as possible. How much is going into taxes, medicare, your 401K? Are you doing employer match on your 401K? I highly suggest that you do employer match (otherwise you are losing money!), but nothing more if you are in debt. The reason?: Well, you are gaining money from employer match, but they are not giving you anything else. Why not just put that into debt snowballing? For those who do not know, debt snowballing is a term that is used to cascade all your debt. I am an avid fan of it, I find that little successes makes you want to tackle the next big thing.
Step 3: Separate Needs versus WantsWow… So this one is obviously the hardest. Is the item that you have been eyeing on Amazon or at the store something that you seriously NEED? If so, then get it, but if it is a want then I suggest to wait 30 days and if it becomes a want still at that time and you have budgeted for it then you should be able to purchase the item. My reasoning is simple: Budget for it and you can get it. If you do not budget for that want then there is no reason to get it, because you did not think into the future. Everything about budgeting is thinking into the future about it.
Step 4: Design Your BudgetYes!! Finally onto the good stuff! After you identified your income and expenses in Step 2, I want you to see Step 4. The more that you budget, the better you will get. I am not saying that you will be a pro the first month or the six month, but I do expect you to learn from your mistakes. The biggest rule in Step 4 is DO NOT SPEND MORE THAN YOU MAKE. You are trying to get out of debt or save up for a vacation, right? Live well within your means and then some. Always think that something horrible is going to happen the next day. Yes, it more than likely won’t happen, but the best thing is to think that it will. If you are tech savvy, Mint is a fantastic planner for you, but if you are not I advise to purchase a planner. Cannot afford it? BUDGET IT. Save up a little before you can get it. In the meantime, you can check out Struggle.co’s list on budget planners that you can download.
Step 5: Put Plan into ActionAt this point, you should have already identified your needs and expenses and figured out your budget. Make sure that you have figured out enough for your necessities ie housing, food, utilities, transportation etc. Have you put enough money for your debt payments? Are you debt snowballing? If so, are you putting enough away for it? At this point, you can tweak what you have done for your budget and see if everything works out.
Step 6: Seasonal ExpensesThis part of the budget is hard, but easy all the same. What kind of seasonal expenses always turn up? Kids school clothes, shoes, an annual membership. Make sure that you are able to afford these and you put them into your budget. An easier way to do these is to think about them throughout the year and budget every month for them rather than just a month or two in advance.
Step 7: The FutureNow, I want you to think about the future. If something doesn’t work, tweak it. If you need help, ask for it. Find someone that is able to help you. Be a buddy. Always be friendly and help others. I find that frugal groups on Facebook can help you on your journey to financial freedom. Overall, I want you to fully look and understand about your finances. There are a lot of different areas that need to be tweaked and for you to fully understand them. For those who find it hard to do any finances, I hope that these steps have helped you become a more independent financial person. You can do this. You’ve got this. Keep up the amazing work that you do.