I don’t think I need to tell you just how important building out a budget for yourself is. Having a budget can honestly dictate your entire life. If your finances aren’t in order then that can bleed over into your marriage, your mental health, your job, etc… That's why I'm going to help you create a budget for yourself so you can build that solid foundation for yourself and you know exactly what you are doing with your money each month.
Step 1: Gather your financial information
The first step in creating a budget is to gather all your financial information. This includes things like your income, expenses, debts, and savings. To get a clear picture of your financial situation, it's important to gather all this information in one place. At the end of this blog post, I'm going to give you an insider trick on how to manage your money better.
Step 2: Identify your income
Next, you'll want to identify all of your sources of income. This might include your salary, any side gigs, or income from investments like real estate or dividend stocks. Once you've identified all of your income sources, you'll want to add up the total amount of income you receive each month.
Step 3: List your expenses
After you've identified your income, you'll want to list all of your expenses. This might include things like rent or mortgage payments, utilities, food, transportation, and entertainment. It's important to be as detailed as possible when listing your expenses. This will help you understand where your money is going each month. I can’t stress how important it is to list your expenses. It’s not enough to just look at your bank accounts and see the money going out. You might think a $10/mo subscription isn’t a lot but if you don’t keep track, then you can get 20 $10/mo subscriptions and you won’t even realize $200/mo is going out of your account.
Step 4: Categorize your expenses
Once you've listed all of your expenses, you'll want to categorize them. This might include categories like housing, transportation, food, and entertainment. Categorizing your expenses will help you see where you're spending the most money and where you might be able to cut back. That’s kind of a teaser to the trick I’m going to show you.
Step 5: Determine your monthly expenses
Once you've categorized your expenses, you'll want to determine how much you're spending in each category each month. This will give you a better understanding of your overall expenses. For example, now that you’ve listed 20 $10/mo subscriptions and you’ve categorized them as entertainment, you can see just how expensive your entertainment is costing you each month.
Step 6: Create a budget
Now that you have a clear understanding of your income and expenses, you can create a budget. Start by setting a savings goal for yourself. This might be a certain amount of money each month or a percentage of your income. Once you've set your savings goal, you can allocate the rest of your income to your expenses. It's important to remember that your expenses should not exceed your income. If you find that you're spending more than you're earning, you'll need to make some adjustments to your budget.
Step 7: Track your expenses
Once you've created your budget, it's important to track your expenses. This will help you see if you're sticking to your budget and where you might need to make adjustments.
There are many free apps and tools that can help you track your expenses. You can add your bank account info to any of these sites or apps and it’ll do everything for you. You might also want to consider using a spreadsheet or a simple pen and paper.
Step 8: Review and adjust your budget
It's important to review your budget on a regular basis and make adjustments as needed. Your financial situation may change over time, and your budget should reflect those changes.
For example, if you get a raise at work, you might want to adjust your savings goal or allocate more money to your expenses. Or, if you find that you're consistently overspending in one category, you might need to cut back in another category to stay within your budget.
Step 9: Stick to your budget
It's important to stick to your budget. This is a lot easier said than done. You might think that overspending in your “want” column, something I’ll get to in a second, but this will come back to bite you in the butt. This can be challenging, but it's the key to achieving your financial goals. You might find it helpful to set reminders for yourself or find an accountability partner to help you stay on track. Remember, creating a budget is just the first step in managing your finances. It's important to continue learning about personal finance and making smart financial decisions.
This insider trick is called the 50/30/20 rule. Think of this like a pie chart. 50% of your income will go to your needs, 30% will go to your wants, and 20% will go to your savings and investing account. Do you remember how we categorized your expenses earlier? Well, this is going to help you understand what you can actually keep or want to keep. Your needs should be rent/mortgage, utilities, transportation, food, etc… These are things you NEED in order to survive. I mean, literally survive. I’m not talking about “omg I need Netflix to survive”.. No. I mean, something you would die or it would cause a MAJOR impact in your life like eviction, etc… On the topic of Netflix, that could go in the 30% want column. But here is the thing, 30% of your income, you can’t go over that amount with your wants. This is where you need to be disciplined as well. This is how you are going to build up your nest egg and start bettering your financial future. Next, 20% of your income will go in your savings and investment account. I think this is pretty self explanatory what this account is for so I won’t bother keeping you here any longer.
If you are wanting to know how you can become financially free in the next 3-5 years, watch the video below!
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