Five Steps To Creating A Budget
1. Document all income and an exact list of expenditures.
Start with your monthly income and your monthly living expenses. Then include how much you spend every month on everything else. Everything else includes coffee money, gas money, groceries, hobbies, fitness center, debt payment, clothes, dry cleaning, etc. You need an accurate picture of what is coming in and going out.
2. Factor in a savings plan.
No matter what your financial goal is, make room to save 10% of your net income. For every $10 you bring home, put $1 in a savings account. Be faithful with this regimen and you will see your savings grow. Savings allow you to borrow from yourself in emergencies instead of using credit. Adjust your living expenses so that you can live on 90% of your net income.
3. Determine your financial goals and make adjustments to your budget to meet them.
By writing down where your money is going, you will get a good idea of the adjustments you can make to meet your financial goals. If your goal is to pay debt, a good place to start is using 10%-20% of your net income to pay debt. Adjust your other expenses so that you can do this. If 10%-20% of your net income does not cover your minimum payment requirements, look to see where you can make concessions or call your creditors to make other arrangements so that debt payment will fit into your budget. Creditors are willing to work with you when you express your plan to repay them.
4. Allow some wiggle room.
Creating a budget is not meant to deprive you of happiness or fun. Budgets will keep you from going into debt enjoying things that are not affordable. Depriving yourself can lead to bingeing, which defeats the purpose of budgeting. Create a vacation fund if you like to vacation or a shopping fund if you like to shop. Budget to contribute an amount to these funds so that when you are ready to take a vacation or go shoe shopping you aren't using money that has already been allocated to something else.
5. Stay within your budget.
Consistency is the key to success in anything. As your financial situation changes, adjust your budget so. If you suffer a financial loss, revisit your budget. If you have an increase in income, adjust your budget. Create a habit of staying within your budget no matter what your income is.
All households and income levels need a budget. Create a budget by writing down all the money coming in as well as what you are spending it on. Start saving 10% of your income, no matter what. Determine your financial goals and create your budget to meet them. To prevent binge spending, do not deprive yourself. Be disciplined by sticking to your budget.
Fancy Free, LLC. helps everyday people reach their financial and personal goals through various vehicles. Call us at (410) 929-0302 to schedule your complimentary consultation.