When it comes to putting yourself in a better financial position in life, there’s always one starting point - your budget. Keep reading to learn more about these financial building blocks.
A budget is defined as a plan for the coordination of resources and expenditures. But why plan your resources (income) and expenditures (bills)? Like most of us, you already know there’s never enough money. However by taking a step back, we can change the way we look at our finances and start finding ways to make the most out of what we have. We’ve all heard the expression, “You can’t see the forest for the trees,” and setting a budget is a lot like that. It’s a way to view the big picture instead of getting overloaded with the bills that are due right now.
“Setting your budget is the foundation of building wealth. It’s like pouring a slab of concrete when you’re constructing a house; you want to make sure it’s solid or the rest of the work won’t be successful.” - David Adefeso
So you’ve decided to put together your own budget - now what? Well, the first step in creating a budget is to define your timeframe. Most people find that creating a monthly budget makes the most sense because bills come in on a monthly basis. If you want to take it even further and break things down into weekly or daily budgets - that’s just icing on the cake! After setting your timeframe, the next step is writing down the numbers.
Start by considering your overall resources per month. The biggest resource most of us have is our income. This might be hourly wages or an annual salary, but the important thing is to assess how much money that means for you per month. Be sure to take out any payroll taxes so that you write down the actual bring-home amount that you receive in total each month. Other money you might include in the resources list are things like child support, social security, and other regularly occurring support you receive. In the example below, we’ve chosen that the person is making $10/hour to make our calculations a little simpler. In an average month, this person makes about $1340 after taking out taxes.
Now comes the not-so-fun part; subtracting out your expenses. Every month, most of us have to pay similar types of bills. Use the list below as a guideline for some of the common costs to see how this example budget spends money.
That means this person has gone $200 over their budget.
As you can see from the example, sometimes we get into situations where our expenses are greater than our income. This can lead to overuse of credit cards, and cause us to dig deeper into debt. So if you find yourself in a hole, the most important thing is to stop digging! Let’s look at 4 easy ways this person might be able to lower their monthly expenses and try to reduce some of the overall debt.
Again, putting together a budget is really about being able to visualize your finances and create a plan to improve them! It’s the foundation for building wealth, and eventually reaching the next step of being able to save.
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