Gaining control over finances allows a person to become more responsible about their spending. While the word “Budget” may be annoying, as it’s associated with restrictive expenditure, it doesn’t always have to be looked at this way.
A person keeping track of all household spending for definite periods can better meet their financial goals every year. For instance, if you wish to buy a new car, or move into a new house, curating a well-thought budget plan provides flexibility in sorting out expenses that matter the most.
Don’t know where to start? Luckily, we have curated this blog to guide you through creating a well-versed finance budget. Here is all that you need to do.
Step 1: Gather All YOUR Financial statements in one place
You need to have crucial data before injecting ink into your pens. Before you begin, make sure to have the following:
- Investment accounts
- Bank statements of the entire year
- Utility bills
- Credit card bills
- Loan payments
- Mortgage statements
- Almost all receipts from the last three months
Try digging up all information regarding your assets, bank loans, and expenses. One of the essentials involved in a budget-making process is creating a monthly average.
Step 2: Estimate your Income
If you are about to get a promotion soon, calculate that in your budget. Make sure to subtract the deductible tax amount from, first and foremost. Moreover, if you have been receiving income from other sources, such as child support, social security, 401 (k), deduct them from the budget worksheet too. Then record this total income as a monthly amount, not leaving a single thing out.
Step 3: List down THE expenses
Categorizing your spending helps you identify areas where you need to cut back to make adjustments. Keeping track of your expenses allows you to hold back on impulsive spending and prioritize things you really need. For example, expenses such as mortgages, rent, utility, and car payments cannot be compromised. These should always be on top of the list.
Next, note down all the variable expenses, including groceries, gas, and entertainment. If you wish to cut down, start by making adjustments through your variable expense by restricting dine-outs, shopping sprees, and holidays. Use a notebook or a smartphone app to note down everything you spend on.
Step 4: Set a goal
You need to set a clear goal of where you are going. Remember, all your hard work on creating an annual budget should help you accomplish your financial goals. You will be able to better comprehend which ones to achieve first by assessing short-term and long-term goals.
Short-term goals can take more than a year to reach, whereas long-term goals, such as retirement, can take years. We suggest prioritizing the ones that matter the most through an in-depth analysis. Don’t rush!
Step 5: Let Go Of YOUR Toxic Habits
Once your goals and objectives are clear and you have documented all your expenses, you will instantly know where your money has been going. Whether it was impulsive buying from a beauty store only because they had a flash sale, or you wanted to treat yourself to a nice spa day, you will become aware of your poor spending.
Consider it a learning process that makes you realize the difference between want-to-have and need-to-have expenses. So, can you skip dining in a fancy restaurant by eating in? Can you borrow a dress from a friend for the party instead of purchasing a new one?
We have two words for you, “Take control.” Let go of all the habits that encourage you to spend impulsively. Learn how to say no to social commitments if your budget is restricted. Cook meals at home instead of getting take-out.
But if the number still don’t add up, try adjusting your fixed expenses. It requires great discipline, but you can do it with a little patience. Weigh your options carefully because such decisions come with great tradeoffs.
Step 6: Review your budget
Life keeps changing! Priorities keep shifting! People move; they switch jobs, they change countries, nothing remains the same for everyone. We recommend you take out time for yourself, sit down, and closely assess the list of your fixed and variable expenses.
Ensure that the annual budget plan you have created meets your current goals and realities. Try creating extra room for expenditure by playing around with the categories. Make this budget plan work for you!
It’s important to set realistic expectations while carrying out this process because, let’s face it, nobody gets their budget of dreams. Be open to change, as this plan of yours might require amendments. You may also force yourself to change a few habits after completing this project. There is no need to feel disheartened with the things you might not have. Instead, focus on what you are blessed with.
God is the one who ultimately blesses us with everything; believe in him, and keep working hard to achieve your dreams!