Step By Step Budgeting.
For many of us budgeting is a word that carries many heavy emotions. Some of us fear the process and fear seeing our financial health. Some of us feel budgeting is too hard or too discouraging. For others the issue is simply we have never been shown how to budget. It does not help that we often only think of the importance of budgeting when our income is no longer covering expenses and we are in a state of panic.
No matter where you are on your financial journey this is a good moment to start budgeting and have a full understanding of your financial health.
Budgeting is a journey.
You are not going to get it right on the first time. Don’t aim for some perfect budget that you will never have to change. Once you have found a budget that works for you most of the time, you will still need to tweak it as your financial situation changes, and as you face the unexpected moments that make up life. Embrace the process. Accept that some months you will succeed and some months will be challenging for your budget. This does not mean that you’re doing it wrong. Sometimes no matter how much we plan life throws us a curveball.
Calculate your income.
For some this is pretty simple and you can simply add up the number of paychecks you get each month. For some this can be pretty complicated if you earn a variable income because you work freelance or work seasonally. If your income is from freelance work you may need to create a multilevel budget depending on what you earn that month. If you work seasonally you might need to have seasonal budgets.
Calculate your expenses.
The more honest you can be with your expenses the more likely your budget will work long term. What are your fixed expenses such as rent or utilities? What are some seasonal expenses you need to plan for such as taxes if you do freelance work or school books if you are in school? What are some of your “life worth living” expenses such as money to take a trip to see family, money for personal growth, or money for entertainment or eating out?
As you are calculating your expenses make sure you include items such as building an emergency fund, paying off debt, maxing out your retirement contributions, or saving up for a major purchase. If you do not clearly list such expenses it is easy to find that what you have left at the end of the month is not enough for your long term financial goals. It can be easy to forget an expense because we don’t want to incorporate it into our budgets, but this is only setting up for failure and disappointment.
There will be times where these two do not match up and where you need to find creative solutions. How might you bring in some extra money on the side such as selling items in your home you no longer need or doing some pet sitting? What expenses can you put off in the short term? The last and most important step is to implement your budget and track your spending.
When we are facing a pile of bills and we are stressed because we do not know how we will ever pay them off the idea of budgeting can seem like an impossible task. In these moments we need to take a deep breath and look at budgets step by step. Budgets take time to create but they can be broken down into their various steps. If you are just starting to budget simply go though these steps one at a time and you will find that you now have a greater awareness of your financial health and will be able to see a way forward into a less stressful life.