by: Shawn La'Vista Jones
To some, the word ‘budget’ is regarding as a bad word! But it doesn’t have to be that way. Building a budget sets the foundation for your finances and gives your money direction. Here are a few tips to get you started down the path to financial freedom.
Gather all financial documents
It’s important to gather all your essential financial documents (i.e. bank statements, investment statements, utility bills and any document pertaining to expenses and income) in order to create the most accurate financial overview possible. I suggest gathering 1-3 months of these documents to better identify fixed vs. variable expenses that you’ll need to create a realistic budget.
Identify all sources of income
Ensure that you account for all sources of regular income: salary income, investment income, self-employed income, support or contribution income, etc.
Create a list of monthly expenses
Make sure to capture every expense that you are responsible for. If you have expenses that are annual or quarterly, average the total costs of each expense and budget for it on a monthly basis, i.e. HOA fees, renters insurance premiums, website domain renewals, etc. Once all expenses are listed, categorize them as essential and non-essential. For example, your mortgage payment is an essential expense in comparison to your non-essential magazine subscription.
After you total your monthly income and monthly expenses, make adjustment to expenses as appropriate. For example, if after reviewing your last 3 months of bank statements you observe that you’ve been averaging $300 a month on eating out, plan to allocate additional funds to the grocery portion of the budget in upcoming months to reduce the amount of money being spent eating out.
Review your budget monthly
Now that you have a plan on how to spend your money each month, review your plan on a monthly basis and assess how your planned spending aligns with your actual spending. Reviewing your budget monthly will give you the momentum to stay the course to achieve the financial goals you’ve set for yourself for the year and will give you opportunities to make adjustments to your spending plan along the way as your financial situation changes.
Creating a budget or spending plan puts you in control of your finances – take control today!