We all know the importance of a budget – it’s the Google maps to our financial independence. But how often to we think about making a budget and say “I’ll do it later“? Newsflash, it’s later.
Half the battle is coming up with the format and writing it all down on paper (so much easier to guess-timate in our heads – believe me, I know). I’ve taken that hurdle out of the way. Here is a step by step guide on how to efficiently, and effectively, get your budget down on paper (finally).
Step 1: Write down your goals & think about the following:
- Do you have a $ of debt you’d like to pay off? If so, what’s the goal timeframe to get to $0 debt?
- Are you saving up for something in particular (wedding, house, vacation, new car, etc.)?
- Are you looking to pay down debt AND save? If so, what are the $ amounts for each?
Step 2: Determine your monthly income after taxes and retirement contributions (if you need help est. taxes click here)
Step 3: Calculate your monthly fixed and variable expenses
Step 4: Calculate your cash cushion (i.e. how much you have left over and the end of each month)
Step 5: Ask yourself the following questions:
- Do you have enough $ left to meet your monthly, yearly etc. savings goals from Step 1?
- Do you have enough $ left over to cover emergencies?
If you answered NO to either of these questions go back through your budget to figure out how to control the bleeding
1) Start with your variable costs, as these tend to be easier to control
- Do you really need that new pair of shoes/jacket/tech toy, etc.? No, need and want are not the same thing.
- Can you eat out less often or invite friends over to watch a movie on Netflix, Hulu etc. instead of going to the movies and handing over a gold nugget for popcorn and a drink?
- How much is that morning latte really costing you each month?
2) Next look at your fixed costs
- Are there any monthly / yearly memberships that you never use?
- Can you try to get negotiate a better deal on your internet/cable package?
- Can you find a less expensive place to buy groceries and/or purchase more store branded products?
*DO NOT, I repeat, DO NOT try to cut back on your debt payments. These come with painfully high interest rates and the more money you can put towards these now the happier (and fuller) your wallet will be later – trust me!
3) Are there opportunities to increase your income? Can you add another income stream?
- Click here for 15 side hustle ideas
Step 6: Once you’ve found a budget that works for you – track your spending over the next month (Click here for easy ways to track your spending).
- Did you stick to your budget? If so, give yourself a pat on the back. If not, don’t beat yourself up about it. Simply ask yourself where did you splurge? Is there somewhere else you can cut back?
Feel free to add in any categories I’ve missed and comment below with any questions or suggestions on how to optimize your budget. For the full, printable template – see below:
Your budget, just like your life, is constantly changing. Make sure you update your expenses as your income and savings goals change over time.
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