Budgeting and Money Management
Getting your financial situation in order doesn't have to be difficult. A bit of patience and careful planning goes a long way. Budgeting is simply a way of looking at your income and expenses and deciding on what is most important to you. Once you identify what you want to achieve, a budget is a tool to help you get there. The better you budget, the better off you'll be.
Your Budget
A budget is your own personal money plan. It will help you organize your money, set and reach your goals and decide in advance how your money will work for you.
Developing a budget will help you…
- Start an emergency fund
- Pay bills on time to avoid late fees
- Pay off debt
- Save for a higher education
- Buy a house, car, boat, etc.
Developing a good budget requires a few things
Personal money management consists of identifying your goals, setting priorities, making a plan and keeping a record of your expenses so you can review and evaluate your goals. Remember, a budget is not just a tool to help you live within your income. It is also a way to help you get what you want out of life.
Identifying Your Goals
Budget planning begins with setting goals. What do you want? Where do you want to be? Not just this month or next year, but over the next five, ten, maybe even 30 years? Group your goals into categories: short (a vacation, maybe a car); medium (a house, your children's education); and long term (retirement). Then rank them in order of importance and cost. Like anything, your goals will be flexible, but they'll give you a starting point.
Setting Priorities
Develop a list of priorities based on how important they are to you and how soon you'll be able to afford them. Keep a record of what you're spending. Separate the fixed expenses (like housing, taxes, loans and insurance) from the variable expenses (like food, clothing and entertainment).
Making a Plan
Step 1: Total your monthly income, including bonus, commission, retirement, etc.
Step 2: Track your expenses
- Fixed expenses – costs that always occur and don’t vary in amount, i.e. rent/mortgage, groceries, and utilities.
- Variable expenses – costs that occur regularly but vary in amount, i.e. car repairs, holidays.
- Discretionary expenses – Indulgences, i.e. concert tickets, restaurants.
Step 3: Calculate and record monthly expenses. Use a budget book, computer software, or budget form
Step 4: Compare your income to your expenses
Step 5: Evaluate and adjust your expenses
Once you see what's left over, you can plan for your savings goals, short-term and long. One of the easiest ways to build up savings is to set up pre-authorized transfers from your checking account to your savings account. If you don't have enough left over after your expenses are paid to reach your savings goals, go back over your expenses and see what you can trim from those that are discretionary.
Sticking to Your Budget
Tracking your budget on a daily basis takes discipline but ultimately will keep you focused and in touch with your spending habits. One of the toughest challenges is ensuring that everyone in the family is on the same page. Talking about it helps. Keeping lines of communication open is an important part of keeping your budget on track. Try to sit down as a family on a semi-regular basis and talk over where you are now, upcoming expenses and overall goals. If you need to make changes because you're spending more than you earn or aren't on track to realize your savings goals, talk them over. It's a great way to build financial literacy for your kids.
Remember, this is your plan, so spend a few minutes thinking about what you want. The following questions may help you hone your budget into a spending plan that complements your goals:
- Does the budget match your financial reality, or does it need to be tweaked?
- Are you staying on track with your spending plan? If not, what needs to be changed? If so, what was easy?
- Are there areas of spending that can be trimmed?
- How can you make the budget work for you?
- What are your short-term financial goals? What are your long-term financial goals?
- Is the budget set up to help you reach them?