"Look at our society. Everyone wants to be thin, but nobody wants to diet. Everyone wants to live long, but few will exercise. Everybody wants money, yet seldom will anyone budget or control their spending." -John C. Maxwell
Budgets are not a one size fit all plan. Each individual has different needs. Whether you are a young person just graduating from college with a modest salary or a parent who wants to financially prepare for a great summer vacation, there is a budget for you. Though each individual’s needs may be different, there are three preliminary steps you can follow to get on track.
1. Track your expenses!! This is the first step to getting a handle on your finances. Track everything from your major bills to your eyebrow waxes to your daily Starbucks fix on a monthly basis. Don’t spare any expense. Knowing how much you spend is the best place to start. I have to warn you, this is going to be painful!! I bet you didn't know you spent $200 on fast food or $50 a week on snacks at that expensive cafe at work (I know it is so convenient!!). Write all of these expenses out in a notebook or if you want to get fancy, an excel spreadsheet. If you are unsure of your expenses, refer to online banking. Most large banks have spending tracker tools so you can track your spending. It is a great tool to use to accurately account for all your expenses.
2. Categorize your wants and needs. After you have created this long list of expenses, segregate your wants and needs. In the perfect world, we would have enough money to supply every thing we want and need but unfortunately that is not always the case (and that is okay!!) This is the step where you have to be completely honest with yourself. Needs usually consist of rent/mortgage, groceries, utilities, cell phone bills, gas, childcare and so on. Needs often overlooked over are savings, retirement, insurance and investing. Placing these items on your needs list will set you up for a comfortable future. You may not know how much you need to set aside for insurance, retirement, and investing. Some of these items are provided by your employer but you should still be very aware of the cost as it may need to be adjusted according to your age or stage in life. If this is a step you are having trouble with, I would suggest speaking to a financial advisor (or reading one of my blogs in the future :)).
3. Balancing your needs against your income. This is the step where you can see financially where you are. Are you making enough money to supply your needs? You may be living beyond your means and not even know it. Are you using too much money on your wants and not spending enough on your needs? In most instances, bills fall behind not because an individual does not have earn enough money but because the funds are misappropriated. Having a 700 credit score is more important than buying a $700 pair of shoes (I know $700 is extreme but you get my point). Hence the former step of separating your wants for your needs.
These are three preliminary steps to create a personal budget. There are many more steps to refine a personal budget to fit any situation at any phase in life which I will write about later. It may seem overwhelming but you are on your way to financial freedom!! Being financially stable just takes a little preparation but once you get organized it just takes a commitment to a financial routine and it will basically become second nature. Start these steps and let me know how it goes. “The secret to getting ahead is getting started…” So get started today!!