By Tiffany Vaughn
We've all been there, mentally accounting for how much money should be in our bank account after bills and purchases from the previous weekend. You log in to your banking app or website, and there it is in all its glory - your current balance showing $3.62.
Several questions begin to flood your brain, including how did this happen, how is my calculation so off, and most importantly, how am I going to make it to payday given what is left? The foundation for any personal financial management plan includes a personal budget. You cannot understand or execute your next financial move without knowing where you currently stand. Let's discuss the beauty of the Personal Budget.
A budget is a plan for income and expenses used as a guide for spending and saving. I know, I know. The word budget sounds so restricting, so mean, and as harsh as nails scratching a chalkboard. You want to live and spend how you want, and because you work hard you deserve to have whatever you want. While I totally agree with these statements, we must be honest with ourselves and understand that some restrictions may apply. Although many people already use a budget (great job!) to plan their spending, most people also routinely spend more than they can afford. This can lead to inappropriate use of credit cards to make up for the lack of funds in your bank account. The key to spending within your means is to know your expenses and to spend less than you make.
The beauty and benefits of budgeting a detailed monthly budget can help ensure that you pay your bills on time, have funds to cover unexpected emergencies and reach your financial goals. With a budget, you have 100% control over your money. It allows you to live with far less stress without having to worry about when the next charge will hit your bank account. This is because you will know exactly what recurring expenses are being deducted every month.
Another advantage of budgeting your money is helping you avoid spending on unnecessary services and products that are cutting into your financial goals. One of the largest expenses every month is money spent on food. For example, spending $5-$10 every day for lunch at work adds up to approximately $100-$200 per month for just one daily meal. Love to stop for your morning coffee? Tack on another $100-$150 per month. These items add up quickly and a budget, as painful as it can be, sheds light on your spending habits and gives you
the ability to determine how you spend your money. Beauty is pain, right?
Finally, the knowledge acquired with budgeting can make talking about finances much easier. Having a budget allows you to have cold hard facts when it comes to communicating. This makes having a calm conversation about money much easier - not guaranteed to be a calm conversation, but much easier.
Create Your Budget - Here Are The Basics
A. Add up your income
You first need to determine how much income you have. Make sure you include all sources of income such as salaries, interest, pension and any other income-including a spouse's income if you're married or sharing a household. If you receive a salary, be sure to use your net pay rather than your gross pay.
B. Estimate Expenses
The best way to do this is to keep track of how much you spend for one month. You can look at a previous month's bank statement or download all transactions from your financial institution's website. Remember to include both fixed and flexible expenses. Fixed expenses are those that generally do not change monthly, such as mortgage/rent, car payments, and insurance payments. Flexible expenses are those that do change monthly, such as food or entertainment. You should also build in transferring money to your savings account as an expense because it makes you think of it as a priority.
C. Calculate the Difference
Once you've totaled up your monthly income and expenses, subtract the expense total from the income total to get the difference. A positive number means that you're spending less than you earn, which is great. A negative number indicates that your expenses are higher than your income. This means you will need to re-evaluate your expenses to begin living within, or better yet below your means.
D. Monitor, Monitor, Monitor!
Track your budget over time to make sure you're sticking to it. A budget means nothing if you don't monitor it, make updates as needed, and reconcile your actual spending to it. It can take revisiting your budget several times to find a balance that works for you.
Life changes, often, but it's important to stay on track, keep your budget updated, and continue to #ActYourWage!
Spring 2019