How to create and maintain a budget
The key to creating and maintaining a monthly budget begins with keeping track of how much you earn and how much you spend. When it comes to your personal finances, it’s best not to make assumptions. Writing down your monthly finances on paper helps you see your “big” financial picture. And, seeing that picture is the key to changing your habits, so that you can reach your financial dreams. Discover 8 steps to creating and maintaining a monthly budget below, or visit the full infographic.
Here are the 8 steps you can follow to create a budget plan that works.
1. Visualize your long-term financial goals.
Thinking about your long-term financial goals will help you create a budget plan. Ask yourself what your financial goals are for the next year, for the next 5 years, and for the next 10 years. When it comes to finances, it’s best if you have a long-term vision or plan, so that when you create your budget, you’ll be motivated to stay on track.
What’s your future vision? Would you like to buy a home? If you’re already a homeowner, would you like to improve your current abode? Maybe you’d like to take the vacation of your dreams, or go back to school to continue your education? Really take time to think about your goals, solidify them, then envision that it will happen. You might make a drawing of your financial vision, or create a collage of photos that captures your dream. Once you’ve physically created your long-term vision, place it where you will see it every morning upon awakening. Seeing your vision every day will help you remember your goals.
2. Keep a journal of your expenses.
Use a notebook with lined paper and create columns for the date, the amount spent, what you spent it on, and where you spent it. Also include a column to note whether or not the expenditure was necessary or an impulse buy. Keep all of your receipts, too. It not only helps you keep track of your spending habits, but also provides you the opportunity to return items for a refund rather than a store credit. You’ll also want to note your regular monthly bills, such as water, electric, phone, internet, homeowner’s or renter’s insurance, food, clothing, gas, and the kids’ school expenses, etc. If you have any semi-annual or annual bills, such as an HOA bill, or a car insurance payment, divide the total amount by the amount of months to get the monthly amount for your budget.
3. Keep a journal of your income.
Include the income from your paychecks, the income from any items you’ve sold, as well as any income from monetary gifts you’ve received, whether it’s a bonus from work or a gift. Always strive to increase your income.
4. Compare the total of your monthly income to the sum of your monthly expenses.
Once you have been keeping track of your income and your expenses for at least one month, compare the totals of both. Are you spending more than you are bringing in? Or, are you making more money than you are spending? Seeing your finances on paper helps you analyze your spending and saving habits. Is it possible to lower your expenses? Do you set aside money for savings each month? Even a small amount saved will add up.
5. Create your budget plan.
Now that you’ve analyzed your earning, spending, and saving habits, create a budget and stick to it. That plan should, of course, include “must-pay” expenditures, as listed in Step 2. You might also want to include a miscellaneous fund as a buffer zone to cover unexpected expenses. Another tip is to budget for future expenses, such as birthday or holiday gifts or parties.
6. Have a family meeting.
Include everyone in the household in a meeting regarding your new budget. Discuss how the family’s spending habits may change, such as eating at home instead of going to restaurants, for example. You might experience some resistance at first because it takes time to change habits. However, once you discuss the big picture vision of your financial plan, and get everyone on board, you’ll be able to travel the path you need to take to get there.
7. Set up a savings plan.
If you haven’t already, set up a savings plan and establish it as part of your new budget. Ask yourself how much you would like to save this year. Then, take that number and divide it by 12 to get what you’ll need to save on a monthly basis. When you divide your monthly number by 4, you’ll know what you need to save weekly. Lastly, divide your weekly number by 7 to get what you need to save daily. This may sound a bit elementary; however, when you are armed with a specific dollar amount, you’ll be less likely to spend impulsively.
8. Start investing.
When people hear the word “investing”, the stock market or real estate may come to mind. However, there are many ways to invest. For example, start by investing in yourself. Is there a skill you need to learn, or a course you need to take to get a promotion, or to qualify for a higher paying position? Do you work from home and need to purchase software or a new computer to increase your ability to earn more money? Investing your savings back into your business helps you increase your earning potential.
Remember, when you create and maintain a budget, design it so that you can live within your means. Then, change your spending and earning habits to reflect your new budget goals. Focus on your big financial vision to stay on track, and then save and invest any extra income. When you have a goal, and work each and every day towards that goal, maintaining your budget will become a brand new habit.
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