Budget. It’s a word that has the same glamour as cleaning the toilet. But the truth is, having a personal budget is just as important. Knowing what you have, and what you need to do to get what you want, is incredibly liberating. Last time I suggested tracking your expenses and income so you know where you are. Here are the steps to refine the information to build a structure for moving forward.
4. Figure out how you can spend less
Even if your income covers all your expenses, the next exercise is important. If your income does not cover all your expenses, this part is critical.
The point is not to overwhelm or distress you. It is to put you in control of your money, so lets see how this personal budget thing can do that.
Seriously look at the list of all the things you spent money on during your tracking period. Now get real with yourself and determine which of those things really were necessary and which were not. Did you really have to have a specialty coffee 5 times a week, eat out for 12 meals, buy 4 new tops (3 of which you may never wear again)? The trick here is not to cut away to a point you cant stand to live, but to a point you can maintain.
So you know how much you made and how much you spent over a period of time. Great start.
Using the same form, create a yearly estimated budget in the EXPENSES EST page. Include all the things you spent money on in your tracking period as well as things you didn’t spend money on but that you know you will need to in the future, such as car maintenance, insurance, tuition, loan repayments, and so on. If you have big bills that come at certain times, put them in the month you pay them. I enter them in brackets [] until I actually pay them so I know they are coming. For example, I know that homeowner insurance is a bill that comes once a year in June. My real estate taxes are paid in March and August.
5. Identify what you need to save to accomplish goals
Here’s a fun part. Use columns X-Z for things you want to save for, like vacations, Christmas gifts, weddings, etc., as well as regular savings. Put the amount in the month it occurs or in December if you want to save all year for it. Notice that line 17 will take the yearly amount and divide it by 12. If you only have 4 months between now and a big payment, multiply the monthly payment by 3. (if you are good in Excel, go into the formula field next fx at the top and change the 12 to the number of months you have to save for it: =W15/12 to say =W15/7)
Box AA17 on the Excel sheet will give you the total you need to make in a month. Probably more than you thought, right? Does your income cover this?
6. Identify if you need to make more money
If your income does not cover the expenses, take a critical eye again at your expenses. Are there some things you could give up at least temporarily? Alter your budget as you find things to trim.
Once spending is cut as much as possible, the other way for income to cover expenses is to make more money. Many generations have worked more than one job at a time, and many have worked three. If you want to be in control of your life, you need to be in control of your money. One advantage to working a lot is that you have less time to spend money. If you really realize that certain things might mean working another job, you may be more willing to reconsider how important they really are to your life and happiness.
Also consider out-of-the-box solutions. If you live at home with your parents, with roommates, or are able to work in a disadvantaged area for a couple of years can you knock off a good portion of your student loans or save for the house you want? The reality is that most big wishes require some form of sacrifice, and that includes having financial control. Evaluate whether the big wish is yours or just one you inherited. Do you really want a big wedding more than the down payment on a home? Is a four year college the best solution for you or would you be better at a community college and transferring for the last 2 years to a state university?
The important word in your personal budget is PERSONAL. It should work for you and help you accomplish those things in life that matter to YOU.
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