Budgeting your money can seem overwhelming. There are various schools of thought on how to think about and manage money. My favorite way to think about budgeting is telling your money where to go.
We earn our income and then what do we do with it? Perhaps we just don’t know where all of that hard earned money goes. Or perhaps we have a detailed list of income and expenses and we know exactly how our money is spent.
I am a firm believer in planning – obviously! I truly believe we need a plan for our money.
The plan can be 5 simple steps:
- Sit down with your bank statements for a previous month. Record your income and each and every debit, expense, investment that went out. You can do this with pen and paper (my preferred method) or excel or a fancy budgeting app. The objective is to know how much money is coming in and how that money is going out. Know where your money is going! Every. Single. Dollar.
- Assess every dollar that went out. Does it feel true to you and what you value? Take ownership of how you’re spending your money. Either be comfortable with how you spent your money or commit to changing your spending habits to be reflective of your values. If you value a healthy meal on the go and you see McDonald’s as a repeat expense in the previous month. Commit to changing that and allocate those dollars to healthy smoothies instead.
- Based upon your spending history in step 2, put together a sample budget. Record your monthly income at the top of the document or paper and list out all non-negotiable savings, expenses and investments. With the remaining money, allocate how it will be spent. Does that look like hair appointments, dining out, fitness classes, books etc.? Write it out until you hit $0.
- Track your actual spending. Save each and every receipt or commit to checking your bank account several times a week. You want to track your actual spending against the sample budget you put together in step 3. At the end of the month - have you overspent, underspent or spent exactly how you expected?
- Tweak your sample budget and continue to revisit steps 4 and 5 on a monthly basis.
There are many philosophies on budgeting. These 5 steps are my take on building a simple budget. Perhaps something resonates with you. I encourage you to take what you like and leave the rest!
Budgeting helps you feel comfortable with how you spend money. Leverage your budget to see how you spend your money. Hopefully budgeting will allow you to feel freedom in how you spend your money and not restricted.
Shoot me an email at firstname.lastname@example.org if you want to chat more about budgets!