For your weekend challenge, let’s focus on getting your budget in working order. Our aim is to create an effective week-end financial planning so that your budget can really work for you!
Set Up Your Budget
The first step is setting up your personal budgeting plan. The budget system can be either be plotted out for a month or for each paycheck you receive. Start by listing out your income and then list your expenses for the month, or for the period between paychecks. Sometimes you might not be sure how much you specifically spent on certain things, such as groceries. To get a rough idea, try looking at your checking account or your credit card statements to get an idea of how much you spent over the last month. Use that number as the blueprint for the current month. If you are self-employed, or you work on commission, setting up your budget might be more challenging as it will not be based on as known, recurring amount, but the plan is still great for managing a budget with a variable income.
Does It Match Your Financial Plans?
The next step is to figure out how the budget will help you stay on track with your financial plan. There are a few key questions you should be asking yourself. Are you spending over what you can permit yourself to spend on a monthly basis? How much extra are you putting toward repaying your debt a month? Are there any expenses that you can cut to help you reach your financial goals? Do you have a balanced budget?
If you find that your budget is not balanced, you need to find some monthly expenses to cut. The best way to sort out which expenses can be cut is to make two lists. One should have expenses that are necessities and the other should list expenses of luxury. Take a look at your list of luxury expenses. Surely, there are at least a few that you can go without, at least for a time. Once you have studied and dwindled down the luxuries list, take a look at the one with the necessities, and while you cannot abandon the items on this list, you are likely able to reduce the number of necessities that you acquire (like cutting down your grocery store bill), but these should always be a priority to cutting luxuries.
Identify Your Finance Problem Areas
Up next is the identification of your problem areas. For you, it might be impulse purchases, for yourself, or perhaps for your children. Perhaps your family goes out to eat relatively often. For these areas, you can set up something known as an “envelope system”. The basic premise of this system is that we set apart a certain amount of money in different “envelopes” each one containing only what we are permitted to spend in a certain category. Once the allotted money has been spent for the month, that category cannot incur any more expenditures. These do not need to be done on a monthly basis, in fact, it might be more advantageous to set these up as a weekly spending system.
Track Your Daily Expenses
Getting used to keeping to a budget is based on a learning curve, so tracking and adjusting your budget is not only normal, it is important to make it work. If you are finding that you consistently overspend on one category, but underspend in another, you can increase spending in the more popular category and reduced it in the other where you need less money. That’s why at the beginning of keeping a budget it is essential to list your daily transactions and evaluate where your money is going on a micro-scale. This will help you adjust to workable budget numbers, and you can do this less often when you have set up a comfortable system.
Evaluate Your Budget Again In A Month Or Two
During the first month of the establishment of the budget, people are excited and they work hard to stick to their financial plan. But during the second and third months, reality begins to sink in, and you realize that things may not be aligned as perfectly as you expected, and you may need to reevaluate. The budget can be fluid while you are adjusting at the onset, so this is completely fine. On top of that, after keeping the budget for a couple of months, you will have a better idea of what you can spend (or not spend) on groceries, gas, and other categories that comprise your budget.