Ah, the “b” word. Nope, not that one…the other one. The one that conjures up images of spreadsheets, endless calculations and potentially, hair pulling. Yep, that’s it … budget! Sadly, it’s this kind of vision that has folks avoiding the work involved in the most effective tool you can use to take control of your money! Its bad rep of boredom and sacrifice overshadow the amazing benefits of having one.
When you create a basic budget and stick to it, it will suddenly seem like you have more money. ~Dave Ramsey
A budget gives you the freedom to choose how you spend and invest your money. And, with the amazing technology we have available today, maintaining a budget is easier than ever!
Follow these 5 easy steps and you’ll be well on your way to controlling your finances!
1. Determine Your After-Tax Income
This amount is your total take-home pay, after Uncle Sam takes his cut, of course. Besides a regular salary, you should include any other income that comes your way during the year. This could include a side hustle, alimony, child support, interest, dividends, social security, year-end bonus, etc.
Have any automatic deductions like a 401(k), savings or insurance? Be sure to account for them so you have an accurate picture of your income and expenditures. If you’re married or have a significant other that you share expenses with, include their income as well.
2. Calculate Your Expenses
This is where the fun really begins! Grab your bank & credit card statements and any other financial files you keep…and possibly a can your favorite energy drink. While most of your expenses are monthly, some may occur only quarterly or annually, so using 6-12 months’ worth of statements can help you get the most accurate financial picture.
List all your expenses – we’ve included a Personal Budget Template to help you get started. Depending on your budgeting experience, or enthusiasm for details, you can either:
- Get an average monthly expense by adding up everything you’ve spent in the last 6-12 months and dividing it by the number of months.
- Break out your expenses by month. For instance, if your HOA fee is paid the first month of every quarter, you only have to include this item in your budget as an expense for January, April, July and September.
3. Subtract Expenses From Income
Your budget should account for every dollar. Although possible, it’s not likely that your expenses will match your income exactly. If your expenses are greater than your income, revisit your budget and see where you can make some cuts. If your income is greater than your expenses, you’ll want to account for those remaining dollars. You could start an emergency fund, pay down debt, invest them in retirement, etc. Just give them a home or they’ll find one of their own.
4. Budget Adjustments
Are you putting your money where your priorities are? Once you’ve taken a look at where you’ve been spending your money, you can make any necessary adjustments to create a budget that reflects your financial priorities. Let’s say after reviewing last year’s expenses you’re surprised to learn that the $5 coffee you grab on the way to work every morning is costing you $1,250 a year…YIKES! What if you got coffee only twice a week and put the $750 you’re saving towards your monthly debt? Or better yet, what if you make your coffee at home every day and saved the entire $1,250?
5. Record & Track Your Spending
Now that you’ve created this beautiful work of art (yep, we’re still talking about your budget), it’s time to put it to good use! Decide whether you want to use technology or take a DIY approach to your budget. If you decide to go the technology route, having software that links to your accounts, downloads all your transactions and categorizes them can be a great time saver. If you’re not comfortable with having your accounts linked to your budget software, using a spreadsheet or good old pencil and paper are still great options!
Review your budget at least once a month to see what money is coming in, how quickly you’re spending it and what you’re spending it on.
Life Happens, Be Realistic
Remember to be realistic about your budget. If you fall off the wagon once and a while, hop back on as soon as you can. If you stick to your budget the majority of the time, you’ll be successful in reaching your financial goals!
The information contained herein is general in nature and based on authorities that are subject to change. Churchill Mortgage guarantees neither the accuracy or completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Churchill Mortgage assumes no obligation to inform the reader of any changes that could affect information contained herein. This publication does not, and is not intended to, provide legal, financial, tax or accounting advice, and readers should consult their advisors concerning the application of tax laws to their particular situations.
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