- November 29, 2021
- Posted by: Virg Cristobal
- Category: Finance
Budget… That dreaded word sometimes sounds a little constrictive or limiting. But actually, when you get the concept of a real budget and stick to it, you can find it very freeing. It’s not about what you can’t spend, but where you can spend. If you’ve been putting off starting a budget, you may have no idea where to start. Budgeting is a great way to make sure you have enough money at the end of the month whether it’s to save, plan for a big expense, or simply know where every dollar goes. Budgeting is just a smart financial move so if you’ve been putting it off long enough, here are some tips on when and where to start when creating a budget.
Don’t just start with your income. There are a lot of other factors that come first; goals, values, and where you really want to spend your money. These should be written down first so that you have a general sense of where you want your money to go before looking at all the dollars.
Your goals might be different than someone else in the house that needs to be on the budget with you. Is it a spouse or partner? Their input will be just as valuable even if there’s only one person in the family that brings in the income. Having everyone on the same page including anyone that your funds may go to on a regular basis means that no one overspend and everybody understands the end result and goals. Talk about the different values and goals that you both want to set for both now and in the future. Are they similar? Simply brainstorm to start off. These goals don’t necessarily have to be the end result, but getting things out of your head and onto paper can help you make better decisions for your money later on.
It has to come down to income. You can’t budget money that you don’t have to. If you have no idea how much income you have coming in each month, now’s the time to figure that out to the penny. If you are self-employed or your paychecks very, give yourself a general but conservative estimate each month. Anything above and beyond that estimate can have a revolving label for where you want that money to go. If you know you’re going to get a certain amount of money in every single month, start with that is your basic income.
Pay yourself first.
Saving and investment needs to be one of the very first things you do. Do you give to charity or ties? This should be towards the top of the list as well. If you pay everyone else and at the end of the month have nothing for yourself, you’ll only stand to regret that later on. Paying yourself now, even a little bit, can work wonders in the long run. Save as much as you can every month. Even small amounts can make a big difference.
Determine fixed expenses.
One of the expenses that you know need to be paid each month? Mortgage or rent, utilities, student loans, child support, credit card payments or other loans. All of these should have a set dollar amount. Utilities will vary slightly but try to give yourself an average of how much those utilities are each month. If your cell phone bill runs between $200 and $230 each month, set a standard of about $225. If you have extra, you can put that towards that revolving goal.
Determine flexible expenses.
These can be food, clothing, entertainment, groceries, eating out, or just play money. If you have no idea where your entertainment and flexible expenses are going each month, simply write it down for one month before starting your budget. Put a piece of paper on the refrigerator or where you’re going to see it every single day. Label it with groceries, gas, entertainment, clothing, or miscellaneous. Each time you spend money from one of these columns write down exactly how much it costs. At the end of the month, you’ll have a better idea of what you spend on each item. However, don’t go conservative just because you are afraid to write it down. You need to know exactly how much you’re spending each month and while the number may shock you in the end, it will give you a better idea of how much to budget for those expenses each month.
Give each dollar a name.
Map out when you pay your bills. Do you pay once a month or twice? This will be determined by how often you get paid. If you get paid once a month, you can set aside your entire budget at one time, pay all the bills, and see what’s leftover. If you pay bills throughout the month, determine when you’re going to make a payment for each bill or invoice and determine how much money you have coming in before you pay that bill. This will allow you to give every single dollar a name.
What to do with the leftover.
Once you’ve given every single dollar a name you may or may not have any leftover. If you don’t, now’s the time to trim the budget in different areas. Maybe it’s cutting back on that latte once or twice a week; maybe it’s shopping once every two or three months for close rather than every month. Find where you can trim off the budget. Remember, try not to trim it off of your own savings and investments but rather frivolous, entertainment or flexible spending.
If you do have money left over, decide what you’re going to do with that money. Will go to savings? Will you set it aside for household improvement? Are you saving it for a vacation or some other big splurge? Will it be used to pay off debt faster? Or will you turn around and continue to invest that money? Again, every dollar should have a name. When you’re done with your budget, the end result should be zero so that you know where every single dollar is going.
See the below example on how you can give every dollar a name.
$10,000 Monthly Budget
– $1000 Investments and Giving
$9000 – Remainder
– $3500 Mortgage
– $1000 Utilities, cell phone, Internet Cable
– $1000 Car payments
– $500 Student Loan
– $500 Groceries
– $700 Entertainment and Eating Out
– $800 Credit Card Debt
– $500 Save for Trip
– $500 Savings for Emergency Fund
Every dollar has a name, even ones that don’t have a set place to go. For more information on building a better budget or managing your finances, contact Chrome Advisors today. We assist with helping you determine the best place for your money to go and really work for you both now and in the future.
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