How To Build A Strong Budget To Enter 2021
How To Build A Strong Budget To Enter 2021
By JW Rayhons & Alexis Stigers
Personal Finances are something that, in my opinion is not talked about enough, and often it can be hard to talk about especially if you are just barely scraping by. I think a lot of times we swipe our debit or credit cards and are scared to look at the result on our bank account. I cannot tell you how many times I asked people if they knew what was in their checking or savings account and they would say “Oh, I’m not really sure, but I am scared to look.” The idea of out of sight out of mind can pertain to a few things but your finances should never be one of them. It is daunting and it can be discouraging to see your bank account slowly (or quickly) drain and think Geez what am I spending my money on anyways? It may seem counterintuitive but tracking what you are spending is the first step to taking control of your finances and setting yourself up for success.
1. Calculate your Monthly Income
The first step is to understand how much money you have coming in to see how much you can spend. This needs to be in after-tax dollars because even though your salary says $40,000, after taxes it is lower. You can check this on one your paystubs, or if you have direct deposit it will usually show in your bank account. Also, if you get money from any other sources besides employment regularly you should also add that to the list. If your income varies from month to month be sure to understand this as well and collect income and statements on a per month basis to see what you earn on average.
2. Start Tracking your Expenses
After your income, you need to track your expenses on a per month basis. This may take a little more time than income. First categorize what you think you spend your money on. (ex: Rent, Utilities, Netflix Subscription, Clothes, Groceries, Gas, etc.) Gather all your information from debit cards, credit cards, to your Venmo or PayPal accounts. Now go to month to month say on the last 6 months and start putting down where you spend what in what category. As you are going through this some categories may form that you didn’t know you spent your money on such as last minute emergencies, gifts for other people, or a monthly coffee fund. Make sure this is all written out preferably side by side so you can compare your expenses every month.
3. Know Your Why
Before you go any further take a minute to determine what is your why. Why are you saving money? Why are you spending money? Why are you making money to begin with? While this might seem silly try to go deeper than the surface level answer of, I’m trying to pay bills, do something fun, have a savings account, to survive, etc. etc. I know when I was first posed with this question my first though was “because I have to.” After some though to these questions, it helped me determine why I was spending money or saving it and led way to my goals. For example, at one point my goal was to go on a trip to Hawaii in about a year, to pay off my loans within 2 years, save for a car, save for a house, retirement or just have more money to give to people without feeling like I was drowning.
4. Determine Your Needs/Wants
Now, knowing your goals you can properly look at your expenses side to side. In order to achieve your financial goals that often means some short-term sacrifices need to be made. In looking at your expenses side to side make a list of what you can not live without and the dollar amount next to it (ex: rent is $900/month, Insurance for $150). Now look at your wants . Of that list what can be given up? Sometimes things do not need to be given up but maybe you can find an opportunity to cut back on. For example, say you found you spent $300/month on outings with friends. If you are anything like me I will not give up my social time with my friends, but perhaps you can aim to spend $200/month instead of $300. Every little bit counts!
5. Write It Down
Now that you have done your research, determined your goals, you are ready to create your budget. Write down all the categories that you determined and put a dollar figure or percentage next to it. You should have money leftover every month for savings. Never spend more than you earn in income! From here know your dollar or percentage amount and stick with it. Every month track your expenses and even give yourself a check in point at the two-week mark if you need a little more accountability.
Always know what is in your checking/savings, where your money is going, and how much you earn. Remember give yourself some grace, life is so much more than making money and paying bills!
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The content in this article was prepared by the article’s author. Cetera Advisor Networks, LLC does not endorse its content, and the views expressed may not necessarily reflect those held by Cetera Advisor Networks, LLC.