Starting a Budget: Unlocking Your Financial Freedom

Happy Couple Creating a Budget

If you were to ask our members if a budget is important, most would probably say “yes.” However, it would be shocking to hear how many actually have an active budget in place!

When we think of our finances, we often think of goals such as paying off debt, saving for a child’s future college expenses, and retirement. Very few people would think to mention developing and adhering to their budget as a top goal, but perhaps they should. Budgets offer the ability to leverage your income and control exactly where you money goes. Simply put, your budget is the driving force for your bigger goals.

Here are eight simple steps for getting started with developing your monthly budget.

Understand Your Net Income.

The first step in creating a budget is to organize and understand all of your income. This includes your salary and any money that comes from side jobs, freelance work, child support, residual income, etc. If you have a dual-income household, this should include your spouse’s income, too.

Track Your Spending.

Unfortunately, there is no way to start a budget without looking at your normal spending habits. If you mostly use your credit or debit card, tracking your spending can be simply a matter of looking at your past statements. If you often use cash, you will need to track your spending in the upcoming month. Try not to judge the habits at this point. Just gather them.

Categorize Your Spending.

Creating categories for your spending will depend on your personal preferences. Some prefer to create detailed categories and sub-categories, while others will operate better with more general ones. The goals of creating categories are two-fold. First, you are identifying what areas of your life are consuming large portions of your income. Second, you are preparing yourself to separate the essentials from the luxuries.

Compare The Income To The Spending.

This is the scary part. How does your monthly spending compare to the money you bring in each month? If you find that you spend more than you make, you are not alone. As a culture, we are notorious for living above our means.

Identify The Levels Of Importance.

For most of us, there is no way around the fact that some expenses are absolutely necessary. However, if we find we’re spending a substantial amount eating out each night, we have found an area of opportunity. Objectively work through your budget, categorizing each element as a need, want, or savings.

Pay Yourself First.

Your savings are essential for your future, but it often seems incredibly challenging. To be sure you are planning for your future, list your savings as an essential part of your budget, and put money into your savings accounts with the same consistency as paying your rent or mortgage.

Adjust Accordingly.

Each section that is labeled “wants” provides you with an opportunity for adjustment. Be sure to keep a budget for fun and entertainment when you are reorganizing. Otherwise, your budget will be doomed to fail from the beginning.

Revisit Your Budget Monthly.

Unfortunately, a budget isn’t created once and never thought about again. Each month, you need to reconcile your budget from the previous month and adjust the budget for the upcoming month. Remember, your budget is fluid and needs to adapt with your life.

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