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Happy New Year’s Eve everyone! I wish you a prosperous and successful 2018. The beginning of the year is the perfect time to set your financial goals and create a plan to accomplish them. For the month of January, my blog posts will solely focus on budgeting. To start, let us discuss what a budget actually is and why it is critical to your financial success.
What is a budget?
A budget is a plan that helps you achieve your financial priorities. It is also an estimate of income (money coming in) and expenses (money going out) for a period of time. When income minus expenses equal zero it is known as a zero-based budget. A zero-based budget gives every dollar a specific purpose.
How to create your first budget?
First, pour your favorite drink. Second, grab a pencil and paper (numbers nerds do it in Excel). Then estimate your income for the upcoming month and write that at the top of the page. After that list all of your expenses for the month by name and amount on separate lines down the page. Begin with categories like shelter, utilities, food, transportation, and all insurance. Then list investment contributions, childcare costs, toiletries, entertainment, clothing, etc. Check your debit and credit card purchases to make sure you did not forget anything.
Some expenses such as mortgage or rent are fixed or the same every month. Expenses such groceries are variable and change depending on your use of the products or services. Variable expenses are more flexible and easier to change the cost of compared to fixed expenses. Put a star near the variable expenses. Anyone interested in decreasing expenses should pay close attention to the costs of their variable expenses. Here are a few important questions to ask:
- Do any of the expense costs surprise you?
- Are you paying too much for anything?
- Can you decrease the cost of them?
- What did you forget to include? Perhaps add in a buffer category to your budget if you need that security.
Next, add up the costs of all your expenses. Make sure income minus expenses equals zero. If it does not, adjust. Once income minus outgo equals zero, you are done. Continue to budget by creating a new one once a month (before the month starts). If you did it on paper, do your future budgets in Excel or your favorite budgeting app.
Still not convinced?
Whatever is holding you back from getting on a budget is getting in the way of your financial success. If you are already doing well, there is more you can achieve when you are being transparent and honest. If you are not doing well, it is not too late to start. Wherever you are on the journey to financial freedom, you cannot go wrong with having a budget. It is time to stop letting excuses get in the way of the greatness you can accomplish. A budget is a blueprint to how you will achieve financial success. All that is required is for you to start dreaming and use the budget as the road map to get there. Start now.
By Simone, creator of Slim Fit Wallet
Thanks for reading!