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In order to accumulate wealth, you must first get your spending habits must be under control. We all have those guilty pleasures that we love to throw our money at. It is perfectly okay to have them! But, whether it be your daily artisan coffee, expensive shoes, or designer purses, you must know your limits. You don’t have to be a financial expert to create a budget. Many people struggle with creating one. But if you follow these four steps, you’ll be on your way to creating a spectacular budget!
Creating a budget doesn’t require advanced math skills or years of experience. It just needs a little planning and organization. And plenty of self-discipline!! Because what’s a plan without action, amirite?
So let’s evaluate the steps to creating a spectacular budget.
- Define Your Goals
- Calculate Your Income & Expenses
- Create a Spending Plan
- Stick to the Plan
Define Your Goals
Start by defining what you want out of your budget. What do you hope to accomplish with your money? Do you want to save more? Spend less? Or maybe you’re looking to invest in something new? Whatever your goals are, make sure you understand them before you start writing down your expenses.
Personally, I think it is the most crucial step. When you are down in the dumps about your spending limitations, this is the goal you must consider. These goals are your motivation!
Your goal doesn’t always have to be short-term, either. For example, my personal goal has been to be financially free. Free in the sense that if my employer were to axe me from my job one day (*knock on wood*), I wouldn’t have the added stress of how I’m going to pay the bills.
I knew I needed to invest heavily in stocks and real estate to obtain that goal. These are assets that appreciate with time and can provide consistent cash flow. After years of consistent budgeting, I’m proud to succeed in this goal!
Calculate Your Income & Expenses
Firstly, you must figure out how much money you make each month. Aside from your job, you may receive other consistent incomes such as VA disability income, alimony, an allowance, or side hustle income. Add these together to figure out what your total monthly income is.
Secondly, it’s time to calculate your monthly expenses. These will help you determine whether or not you need to cut back on some of your spending habits. If you have trouble figuring out your expenses, use a free online calculator like Mint.com.
This is where things get real. The amount of money you have loosely spent on frivolous things may inflict pain on your soul. But persevere, my friend and stand tall you’ll be okay. Now that we know where our money is going, we can make a change.
Create A Spending Plan
Once you’ve figured out your income and expenses, write down every expense you expect to incur during the next month. Start with all of the essentials from rent, groceries, and utilities. Then, work your way into non-essentials such as entertainment and leisure. If you don’t want to do this by hand, you can use a free app such as Mint.com. It’s easy to set up, create a budget, and give you a clear picture of where your money goes. Also, it can hold you accountable with alerts if you are going over your budget.
Many financial experts recommend the 50/30/20 method of budgeting. In this method, you will allocate 50% of all expenses to needs such as Housing, utilities, transportation, and groceries. Next, you allocate 30% to wants like gym memberships, dining, and clothes. Then finally, you give 20% to saving and debt.
Personally, whenever I get a raise or an increase in my income, I boost the percentage of my savings and try to keep my expenses low! For example, my current savings rate is 40%, my living is 40%, and my wants are 10%.
Check out the video below explaining the 50/30/20 rule, which Mint created.
I should also note that Mint is an app I use for budgeting purposes. The app can link directly to your bank, brokerage, and debt accounts. The app will also pull your credit score in as well!
I do feel the need to clarify since I referenced Mint twice now. They aren’t paying me to advertise their service either (but maybe one day, lol). So, yes, I do think the app is that good!
Stick To The Plan
Now that you’ve created your spectacular budget sticking to the plan is the hard part. When you first adopt your new spending plan, it’ll be rough. There may even be a few instances where you’ll have to decline a night out with friends. But don’t let this discourage you. Your future self will love the sacrifices you’ve made to get you where you are.
As time goes on, living expenses tend to go up or even multiply with new additions to the family, such as children or pets (some pets can eat a lot!). It’s okay to adjust your spending plan, and it is also okay not to be in the confines of the 50/30/20 rule. If your income doesn’t allow it is okay to bring the saving down to 5% if need be.
Just make sure that you are consistently making progress towards meeting your financial goals!
