As the fiscal year-end grows closer and closer, now is a good time to take a good, hard look at our financial situation and ask ourselves an important (and perhaps difficult) question: am I doing everything I can to secure my financial future? Odds are, there are some adjustments you can make. For instance, do you have a monthly budget in place? If not, this quick blog post is a must-read!
Steps to Create a Budget
The first step you must take when creating a budget – no matter whether it is for monthly expenses or saving for that once in a lifetime vacation – is to figure out your monthly income, after taxes. This total should include any supplemental income, such as from a second job, dividends from investments (on average), tips, child-support, or money from inheritance. Basically, anything that earns you income or pays you money, add it up and make note of it. This amount will be your income for the month.
Now that you know how much money you average per month, you can move on to the next step: adding up your known expenses. This task is not as easy as you might suspect, and, ideally, should take you at least a month to do. For starters, write down all of your monthly bills, including utilities, mortgage, car insurance and car payments, any subscriptions, cable, Internet – any recurring monthly bill.
During the next 30 days, collect all of the receipts from any purchases you make. This can be weekly gas fill-ups, lunches, coffee – even that soda you purchase at the store. If you do not have time to wait 30 days, you can also look at your last month’s bank statement – however, it may not be as accurate if you pay for some things with cash, as those, obviously, won’t show up in your bank statement.
Now that you have an itemized list of your expenditures, you can combine them into categories. For example, all of your receipts for groceries, lunches, ordering pizzas, buying candy bars or soda at the gas station, and so forth can be put into a Grocery category. It may be wise to even separate your “Grocery” items from your lunch items, as you will then get a clearer picture of where your money is being spent, and be able to identify key areas to cut back on. For instance, if you purchase two cup of coffee per day, you may want to consider cutting back to one, or making it at home. A simple step such as that would let you easily shave off around $100 per month from your total expenditures.
Once your list is categorized, put stars or asterisks, or somehow denote, the importance of each item. For example, your monthly mortgage should be marked as mandatory, while money you spend to go to the movies could be marked as “want” versus “need”. This will help you later on if you decide you need to cut your spending.
Next, subtract your expenditures from your monthly income. If you have surplus (we hope you do), you can decide what to do with this money – such as bank it, invest it, or be a little more lenient with your spending. We, of course, suggestion setting some aside for a rainy day fund or investing excess cash by paying-down any debt you may have. This is a great way to increase your monthly surplus!
If you do not have any extra money left over, find yourself with a negative balance, or are not able to set any money aside for a savings fund, it is time to take action and start whittling away at your budget, looking for areas to cut back. If you cannot find any areas to save money, consider taking a part time job to help pay down existing debt. You can also consult with a financial advisor, such as Clayton Paulk and Associates. A CPA or accounting professional will take a look at your finances and offer great advice on how to “right the ship”.