Know How to Utilize A Budget That Prioritizes Your Goals
Whether you started a new job and have a much larger income now or you’re lost in the mix of heavy expenses and have no clue what you’re spending (but you’re pretty sure it’s too much), we’ve all had the rude awakening of realizing we need a solid budget. This is especially the case when your expenses have become primary to any goals you have, such as saving for retirement, an emergency fund, or travel. Here are six steps for creating a realistic and achievable budget…
1) Know Your Goals
The most important step of budgeting is not actually the budget itself but knowing why you want to make a budget. If you don’t have realistic goals outlined, then it will be difficult to know what to create a budget for. Are you working to save an emergency fund that covers 3-6 months of expenses? Do you want to pay off your credit card debt in a year? Do you want to save as much of your leftover money for retirement and investing as you can or better yet, pay yourself first by putting aside an allotted amount for these goals each month? Take time to really consider what you want and how it aligns with the life you currently live. Then, write these goals down with a specific dollar amount and the time frame to achieve them.
2) Know Your Income
Another significant step in the process of budgeting is knowing what money you have coming in each month, be it from your employer or other sources. If you have irregular income, try to estimate your average or lowest monthly amounts. Make sure you write these number down, and remember to include the net pay you receive (money after taxes and deductions) versus the gross pay.
3) Know Your Monthly Expenses
Equally as important as knowing your income is knowing your monthly expenses. To do this, evaluate your bank and credit card statements. Quick tip: Print these out and indicate the separate expense categories you notice appearing each month (Ex: Highlight the categories in different colors).
Monthly expenses can include, but are not limited to:
- Groceries
- Rent
- Gas
- Car loan/ student loan payments
- Internet
- Streaming services or cable
- Monthly subscriptions such as Spotify, Apple, etc.
- Credit card payments
- Gym memberships
- Eating out
- Entertainment
Note: Don’t forget to include miscellaneous expenses such as gifts, doctors’ visits, or medicines you buy periodically!
4) Create Your Budget
Now that you have the “meat” of your budget, it’s time to go in and create the budget itself. This is the easy part! Simply add your monthly expenses to your monthly goals, then subtract this from your monthly income. If the balance is positive, you have a realistic budget. Consider adding the extra funds to accelerate your goals for savings or debt payoff. If your balance is negative, you’ll need to reconsider either what you’re spending, your goals, or both. See Step 5 for more information.
5) Reevaluate Your Budget
If your first attempt at a budget came up negative, don’t sweat it. On average, it takes about 6 months to refine your budget. It’s normal to have unexpected items crop up for the first few months. However, after you’ve used your budget for a bit, take a look at what expenses you can minimize. Which ones are a top priority for you? Which can you live without while you work toward your goals? For instance, you may realize you spend way more on your daily Starbucks than you originally thought. If so, you can either lower the budget or if you know you’ll be spending that amount, consider lessening other expenses, such as your monthly subscriptions or eating out too much. It’s all about what you prioritize.
Your budget is fluid, and it’s allowed to change as you move forward and reevaluate your goals. Additionally, if you need to adjust the amount of time needed to meet a goal or figure out other methods of increasing your income (taking a second job, starting a side hustle, etc.), this is an option for you too. Just remember that if you want to dedicate critical time and money to achieving your goals, it’s so important to know what unnecessary expenses you should scrap to achieve them.
6) Keep Up with Your Budget
Lastly, remember not to neglect your budget. Amidst a busy schedule, it’s all too easy to forget it and veer into overspending. Keep track of your expenses by utilizing the many online resources available to you, such as websites that assist with money-saving ideas and provide plans for setting goals. There are also countless budgeting apps that you can access for free or for an upgraded monthly plan (Ex: EveryDollar, Mint, Wally, and GoodBudget). These apps make it easy to track your spending by enabling you to input every payment you make directly into your budget or even linking with your bank account directly. Click here to access other budgeting resources under the “Helpful Tools” section of this blog.
Need help budgeting? We’ve got you covered with our Young Professionals Program, where we’ll meet with you to advise on your financial plan, including your budget, long-term and short-term goals, and ways you can work toward them. Interested in learning more about how to establish a foundation and define your financial future as a Young Professional? Check out our blog on our Young Professionals Program. (Click here to read more.)
Or if you’re interested in scheduling a consultation with our team, contact us now for more details. Click here for contact information. Or click here to learn more about our Financial Planning & Investment Services.
Blog by Kathryn Miller, CPA – Senior Tax Accountant
Learn more about Kathryn and the rest of the Storen Financial team here.