Getting into the nitty gritty of budgeting.
I know, you’re super excited about budgeting. After reading last week’s post on the Benefits of Budgeting, I’m sure you’re on the edge of your seat in anticipation of actually doing it. Creating a budget is an important money habit that will help you manage the money you’re already receiving. Since money is an energy, learning to manage what you’ve got is so important, so when you start receiving more you’ll be ready to manage it. If you think about it, a budget is a plan. Without a plan you have no idea where you’re going with it or where it’s going. Just like taking a trip, you wouldn’t set out on your journey without a map or a plan to get there. As such, you can’t expect to reach your financial goals without a plan. Money needs you to direct it, so it doesn’t drive you.
Let’s look at how you can get on the road to financial success by budgeting.
Step 1: Tracking it.
I’m such an accounting nerd. I track everything for my business and personal spending in Quickbooks. I like to look at current year spending habits and compare it to other years. No you don’t have to love tracking money as much as I do to be successful at budgeting. Tracking your expenses is a great tool to help you monitor what’s taking place in your world. You could potentially see patterns within your spending habits that could be sabotaging your financial goals. You may also see patterns where you are trying to fill emotional gaps through overspending, trying to feel important, or other ways you’re sabotaging yourself financially. Tracking is easy. Each month you write down everything you spend. This includes credit card charges, items paid for in cash, etc. You can keep track on a simple spreadsheet through GoogleDocs, Excel, or even write it down in a notebook. Just keep track of everything you spend in whichever system works for you. It takes a couple of months to get this system down, but once you do you’ll be more mindful about how you spend.
Step 2: Categorize it.
There are three categories to begin with. You can break it out further, but to start with, keep it simple. These are your fixed costs. The amount typically doesn’t vary much from year to year in this category.
Absolute necessities – 50% of your take home pay should be allocated to housing, utilities, and transportation.
Voluntary obligations – 30% of your take home pay should be allocated to discretionary items such as cable, dining out, the latest and greatest fashions, etc. These are variable costs and can change based upon your choices.
Financial priorities – Allocate 20% of your take home pay to go towards your financial priorities such as getting out of debt, saving for your kids college, planning for a trip, buying a house, or whatever you want to achieve.
Step 3: Stick to the plan.
It takes about 3-4 months of actively tracking your money and following a budget before things seem to click. When you’ve got a plan to follow, you’re more likely to stick to it.
Rewards of budgeting.
Budgeting provides you with
Clarity – about where you money is going
Peace of mind – because you end up worrying less knowing how you’re spending
Course correction – helps you see when you’re out of alignment with your goals
Financial Freedom! – you’re able to stay on track and reach your goals, helping you feel confident, successful, and empowered about your ability to manage money.
It doesn’t matter if you make $20,000 a year or $200,000. I’ve seen the same thing happen when people don’t have a plan for their money. At the end of the year they wonder where it all went!
Having a plan for your money helps you stay on track and achieve the goals you want, perhaps even sooner than you imagined!
Wishing you a wildly abundant week!
Let us know what you’re doing to managing your money! Make a comment.