Stay On Budget to Take Control of Your Financial Future
Most people compare the idea of budgeting with pain more commonly associated with getting a root canal at the dentist. What they don’t realize is that much like a root canal, the pain eventually goes away, and you will ultimately end up in a better place when it’s over. Budgeting requires discipline and the desire to achieve a goal that will be beneficial for you and your family. This column is a basic framework to get you started.
Determine an accurate estimate of monthly income for your household. All sources of income should be considered. This can be difficult because these amounts can vary from month to month. In this situation, it’s a good idea to use the average from a series of months. This number is vital for future calculations.
Most expenses can be separated into two buckets: one for needs and one for wants. Needs are expenses that are not optional and must be paid every month, such as rent or mortgage, utility bills, car payment and groceries. Then you have your wants: streaming service (which may be a need during the coronavirus pandemic, but for this column we are discussing normal circumstances), gym memberships, dining out, entertainment.
Organize these into two columns then total out each column. Now you have a total for needs and a total for wants. Add these two together to get your total expenses.
Will I make it?
Compare your monthly expenses to your monthly income. If you have a goal to save an extra $500 a month, see if your income exceeds your expenses by $500. If it doesn’t, then you should have the conversation about whether you and your significant other are on board with the plan on how much to save. The most important aspect of achieving a family budget is having a mutual agreement.
How can I get there?
If you are coming up short on your goal don’t stress out, at least you know where you stand. You’re already in a better place than you were prior to starting this exercise.
You can fix it by re-visiting your wants column and see what you can live without. These decisions can be tough but will be worth it in the end. Adjust your expenses to reflect your new budgeting decisions until you’ve reached the numbers that will match or exceed your goal.
Implement, monitor and adjust
Now that you have a plan, it’s time to put it into action. Take the proper steps to implement your new budget and monitor your spending so you can stay on plan.
Review your results at the end of each month. Achieving your goal becomes an infectious feeling. Once you’re able to easily achieve your current goal, make a new goal and re-visit the process. Make sure to adjust your goal when new life events occur. Getting married, having a baby, or receiving a hefty raise are examples of events that could require budget adjustments.
Staying on a budget requires determination and discipline. The results, however, can be life changing. Stick to the plan, find that better place and take control of your financial future.