Making a Budget: A First Step to Reach Any Financial Goal
This is one of my most favorite topics in which to talk. I know, budgets are a scary point of discussion for many people. I am willing to bet that most people are afraid of it because they simply do not understand it. Many think of a budget as a form of control. They also think that once a budget is in place, they are no longer able to purchase the items they want or do the things they want. That is really not true. A budget can change to your needs and potential wants. A budget gives you a better idea of how much money you can spend smartly. The best thing you can do for yourself is making a budget.
How to Create a Budget to Reach Any Financial Goals
Before we start talking about making a budget, it is important that you fully understand what a budget is and what a budget is not. In its simplest terms, a budget is a plan to assist you with spending that is based on all of your expenses and income. It can be for a short period of time, such as a year. It can also be for a long-term solution. Budgets can also be put in place for a specific financial purpose, such as eliminating debt or saving money for retirement. A budget is about creating goals for yourself. Typically, your budget should have short-term and long-term goals.
When you create a budget, you must be honest with yourself. If you are not honest about the money you are spending, you will never be able to create an accurate budget. This budget is for you and created by you, so there is no reason why you should attempt to hide spending for yourself. There are a number of apps and websites available to you to help you create a comprehensive budget for yourself. When you begin to think about creating a budget, you should also think about what goals do you have? You can have multiple goals and you should write them down. After you have written them down, you should prioritize them and put them in order so you know what you want to work towards and in what order.
Why Should I Have A Budget?
There are a few times when I will say something is for everyone. However, making a budget is one of those things that is absolutely useful for everyone. There are many benefits to creating a budget. It can help you create smart financial goals. It gives you the encouragement you need to spend only the money you can afford to spend. It also helps you make financial decisions so that your money can begin working for you. Some common financial goals that almost everyone has been gaining an understanding of your specific relationship with money. When you track your expenses, you begin to see how and where you spend money which may give you some insight as to why you are spending the money you are spending.
With a budget, you put yourself in a better position to save money for your future and retirement. You can also begin to save money for emergencies and short term spending like for a vacation. Once you create a budget, you create a path for you to get out of and stay out of debt. You also have a better understanding of how much money you have available to spend so you can make the best decisions for yourself at the time. Having a budget cuts down on the stress you have. Once you have money working for you and you find that you are able to get yourself out of debt, you feel less stress about money. You are also in a better position to handle any emergencies that might arise.
Are There Different Types Of Budgets?
There are a number of different types of budgets you can consider when making a budget. One point to keep in mind when you are making a budget is that you should pick something that you can stick to. You should create a budget that works for you and not against you. You should keep it simple and create goals and milestones that are achievable. This way when it gets hard, and it will, you are able to remind yourself why you have a budget in the first place.
The different types of budgets are a planning budget, a problem-solving budget, or a comprehensive budget. A planning budget is great for when you are planning for a specific event, like a wedding or a house. With this type of budget, you start with your goal and determine how much you need to save. For this type of budget to work for you, you must be clear in your goal. You must have an end date in mind when you begin to save. Once you have your end date and the amount of money you need, you can divide the amount of money by the number of months you have. This lets you know how much money you must save each month to meet your goal. You should be sure about the amount of money you need because you do not want to get to a place where you will not have enough money. Once you have the amount of money you need to save, you can begin to see where you can save money on expenses. I will go more into cutting expenses later in this article.
The problem-solving budget is a fairly simple budget and it is one that helps you solve a problem. For example, you are spending too much money in one area and you want to decrease how much money you are spending. This is the budget for you. First, you need to determine what is the spending area you want to correct. You need to pinpoint it. The basic gist of this budget is to limit the amount of money you spend on, let's say coffee. You then redirect the money elsewhere so that it is not sitting in your bank account and then you think it is available to spend however you wish. This budget somewhat does what most people fear about budgets. However, when you use this budget you are choosing it for a specific reason. You can select one area at a time you want to correct. Once you correct that you can move on to another area.
The comprehensive budget is the big daddy of all budgets as it takes on everything all at once. This takes much more work and time, along with discipline. This type of budget gives you the biggest results and the most satisfaction. It is also a complete upheaval of your finances. With this type of budget, you are setting limits on all of your spending. You look at all of your expenses in every category and start putting limits in every place you can. You also cut down how much you are spending on items that you deem are necessary.
What Is The First Step I Need To Take To Create A Budget?
You have decided that you want to start making a budget, so where do you start? The first step that you need to take in creating a budget is gathering all of your information. You need to know your total income and all the places from where it comes. You also need to know all of your current expenses. That may seem like an easy task, but I guarantee you that you will forget a few of the items on which you spend money each month. You have fixed expenses such as a mortgage, rent, and most utilities. These are easy to capture. There are many miscellaneous expenses that you must track also. The best way for you to make sure you capture all of your expenses is to look at your bank statements. You may need to look at several months of bank statements to ensure that you capture all of your spendings.
If you try to guess, you will be wrong. I am sorry to tell you, but you will. Do not guess. Get the actual figures so you are working with real numbers. You will be surprised when you see how much money you are spending and where. When you work through this step, do not place any judgment on it. Just write down all the items on which you spend money and how much per month. Do not beat yourself up about it. You will get to a place where you make changes soon. For now, focus on tracking it all.
What Should I Pay Attention To?
I want to pause here for a second. This is important, so I want to say it again. When you are making a budget, you must be sure to track every single one of your expenses. Now is the time to see it all written out in black and white. If you are serious about creating a budget, you must be serious about tracking all of your expenses. Until you see all the ways you spend money, you will not know where you need to make changes to your spending. The only person you are hurting is yourself when you do not list out all of your expenses. Take advantage of this opportunity to list it all out.
Are There Hard Decisions?
Yes, absolutely. When you are focused on making a budget, you are going to have to face some hard decisions and choices. This is what happens when you want to scale back your expenses and begin to save money. You have to make decisions about items that are non-negotiable. These are items like rent or mortgage and a car payment. Food is also considered a non-negotiable, after all, you need to eat. However, the hard decision is what do you eat and where do you get the food. You have the choice to shop at the grocery store and cook food or eat out. Another hard decision for you may be where do you shop for your food. You may have a local grocery store that is close to your house and convenient but does not offer you the best prices. Instead, you may have to drive another few minutes to shop at a store you do not prefer as much but can save you hundreds of dollars each month. The hard decisions often come in when deciding between the items you need and the items you want.
What Is The Next Step I Should Take?
The next step when making a budget includes those hard decisions I talked about in the above section. Once you have all of your expenses written down, you now have to organize your expenses into categories. You can start with four categories such as must-have, important, other needs, and fun stuff. I am sure you can figure out what expenses must go in the must-have category. These are items like mortgage, car payment, and utilities. You should put anything that you are legally required to pay, such as credit card bills and loans in the important category. Items like phone, internet, TV can go into the important category. Groceries and gas should also go into this category. Any item that is purely entertainment should go into the fun stuff category. When you begin to put expenses into categories, it can help you decide which ones you can easily cut out.
What Do I Do About My Expenses?
Now that you have all of your expenses listed and you have categorized them, you know which ones you should begin to work on reducing. It is important that you begin to reduce your spending when you are making a budget. Now is the time to take a close look at your spending and determine if you are spending money on items that you do not use, such as that gym membership. Start canceling all of the items you no longer use and you could save a hundred dollars each month. Once you do that you can set yourself a weekly expense amount. You should set your expense amount with your overall budget goal in mind. First, decide what your goal is and how much you need to reduce your spending to achieve that goal.
Don’t Waste Your Time. Reach All Your Financial Goals NOW.
Take Control of Your Money
How Can I Reduce Spending?
Once you make the easy reductions in your spending, you now need to make the harder decisions on where to cut spending. When you are making a budget, you are going to have to cut your spending. Another easy way to reduce your spending is to reduce the number of times you eat out per week. When I say eating out, I mean even those coffee shop visits. If you start by reducing the number of times you eat out by half, you could save hundreds of dollars per month. Another technique is to save your eating out for the weekends so that it can be special. Once you have reduced your eating out by half and see how much money you can save, you may be inspired to reduce your eating out even more.
Once you have done that, you can start turning your attention to utilities. If you adjust your thermostat by a couple of degrees each way, you can save hundreds. Raise your thermostat by a couple of degrees in the summer and decrease it by a couple of degrees in the winter, you will be surprised at how much money you can save. Also, if you unplug all of your electronics when they are not in use, you can also save yourself some money on your electric bill. I know it sounds crazy, but those small steps can save you more money than you realize.
Conclusion
So you know that you want to begin making a budget and there are some steps you must take to work towards a budget. You must start with the end in mind when you want to start making a budget. You have to know what goals you want to achieve and you should determine how long it will take you to reach those goals. Once you know what your goals are and how long you have to achieve them, you can then determine how much you need to save to achieve your intended result. Once you know your goals, you can then determine which budget is right for you. When you arrive at a decision, then you know which steps you need to take to get there.