Budgeting Tips for Success
By Chalee Crouch, CFP®
I have been asked many times over the years how to budget, and I think it is most important to focus on why we budget. At first, budgeting will feel restrictive, but having control over your money will help create more financial freedom in the long run.
The first step is to identify all sources of income. If you earn W-2 pay, the net (after-tax) income should be an easy place to start. Then add any side hustle, alimony, and/or child support received, government benefits or gifts if applicable. Then figure out how to prioritize the money you have.
Next, track your spending for a period. Bills are simple to track over the course of a few weeks, and as for discretionary spending, I recommend stashing a notepad in your car or in your bag and writing down all purchases for a few weeks. There are a lot of budget tools available to categorize items once you have a feel for your spending. This activity will make it easier to separate the fixed expenses from the variable expenses, as well as really identifying the necessities, which are generally food, shelter, utilities, transportation, and insurance.
Before we move on to goals, we should spend a moment on debt. If you are having trouble affording debt repayments, and are continuing to accumulate interest and late fees, it is nearly impossible to gain a lot of ground on a healthy budget. It may be necessary to seek some advice from a legitimate counselor to help consolidate and negotiate lower payments or better terms to help you get back on track.
Lastly, I would identify short term and long-term savings goals. Examples of a short-term goal would be sufficient emergency funds, such as 3 to 6 months of living expenses in a savings account. A mid-range goal may be a 5-year target to save for a down payment on a home. A longer-term goal may be retirement savings.
Stick to the spending plan and set specific dates to track your progress. Consider using a money tracking app, budgeting software or even a simple spreadsheet to get started. There may not be much room in the beginning for “want” spending, but the budget can be adjusted as your financial situation improves. By embracing budgeting as a tool for financial empowerment, individuals can pave the way towards achieving their financial aspirations and securing a brighter future.
This communication is intended for informational purposes only, and is not intended to be a substitute for specific individualized advice, as situations will vary.
Category: Wealth Planning
