Have you ever set out on a cross-country trip or even decided to drive to a new restaurant in a new city? What’s the first thing we do? Get on our cell phones and pull up a mapping app to find the best and fastest route. Can you imagine trying to map our financial future without a map? It would be virtually impossible. This financial map is called a budget. We know it can be scary to put our spending habits on paper; however, a budget can be the first step to financial freedom.
So How Do You Get Started?
Step 1: Identify Your Goals
What are you trying to achieve? Are you trying to pay off debt, save for retirement, or maybe stop living paycheck to paycheck? Identify what you would like to tackle. Remember, if it seems overwhelming, try to break it down into smaller, more manageable goals. For example: What can I do to pay down my debt by $1,000 in the next five months?
Step 2: Determine Your Income
Once you’ve identified your goals, determine how much total money you have coming in. Remember this should be after any deductions you have: taxes, social security, 401K, etc. This will be the net cash coming to you.
Step 3: Know and Track What You Spend
Next, you will need to track your spending. This will be your fixed expenses, things like regular monthly bills, rent or mortgage, car payments, credit card bills, housing expenses, childcare fees, etc. Record your daily spending with an app! Mint Intuit, PocketGuard, and Clarity Money are some free apps that you can use to track your spending. Or go the old-fashioned route and track your spending habits with pen and paper.
Step 4: Develop a Plan
Total up your required payments after you’ve tracked them. Take this total and subtract it from the net cash coming into your account. The amount that you have leftover is yours for discretionary spending. (Discretionary means the money you’d use for extracurriculars, shopping, eating out, etc.)
Step 5: Adjust Your Spending Habits
By documenting your income and spending, you can determine if you have money left over or where you need to cut back so that you can put money towards your goals.
Finally: Keep Checking In
You must continue to review your budget regularly so that you stay on track. Your financial roadmap will help keep you on a path to obtaining your financial goals. And remember, small savings or adjustments to your spending habits can add up. You may be surprised by how much money you can accumulate by making small adjustments.