Create Your Budget
The first step in creating your budget is to put your income and expenses details into a spreadsheet. While doing this, you should consider both the general categories of spending (like housing, food, transportation) as well as your needs, wants, and savings. The organization ‘Her First $100K’ and globally recognized money and career expert Tori Dunlap recommends prioritizing necessities so that you can gain a better understanding of your budget, especially if you are living paycheck to paycheck. “As much as I’m an advocate for finding space in your budget for your wants, there will always be times in your life where needs will win – like an emergency or job loss,” Dunlap said to The Balance via email. “It’s always easier to find places to put extra money rather than to find extra money,” Dunlap added.
Track Your Expenses
As you spend money, it’s important to know where that money is going. Throughout the day or at the end of each week, jot down all your expenses in a notebook or track them in an app or on your smartphone. The key is just to track them somewhere. “Tracking expenses is not a time to judge what’s good or bad or even take action,” according to Jennifer Sabel, president of Utor Wealth based in Kirkland, Washington, via email to The Balance. “Think of it like reading a book or meditating: it’s just a time to take note of the data.” You may notice annual subscriptions or streaming services that you’ve forgotten or didn’t notice when gathering expense data. While automating bill payments can help avoid missed deadlines, it’s important to review them for errors or surprises. A very high water bill, for example, could indicate an expensive leak. Then input your expenses into the spreadsheet at the end of the day or week. But if you feel overwhelmed by spreadsheets, that’s okay; the tool is not as important as the process of taking inventory.
Adjust Your Habits
By tracking your expenses, you’ll be able to notice any bad financial habits, if there are any, and make appropriate changes. You might look at your money line by line in the middle of the month or at the end of the month. As long as you check your spending and see what has changed from month to month, you should have a strong understanding of your spending habits. If you need to cut back on some ‘fun’ spending, first identify what you particularly enjoy about that expense, as Sabel suggests. Then brainstorm ideas for more cost-effective ways to gain that enjoyment. “For example, in the pre-Covid world, I used to get foot massages regularly,” Sabel said. “That expense for me isn’t about my nails, though. It’s about getting an hour of quiet time to myself. I can achieve the same thing by walking alone or visiting the library.” Dunlap points out that if you spend less in the wants category in one month, you can either add it to another category like saving or roll it over to next month’s budget, thus providing a slightly larger budget for the upcoming month.
Consider New Opportunities
After living with your budget for a while, you might find a persistent shortfall. Over time, if you are not achieving the goals you were hoping for, consider cutting back on some of your wants. Or you might think about bringing in a peer or partner so you can budget together and hold each other accountable. If you have already cut back on any unnecessary expenses but still find yourself ending up with debt or without savings, think about new opportunities in the short and long term to increase your income. These opportunities may include: joining a local workforce development program or college course to gain skills necessary for a high-demand, higher-paying job; claiming government benefits and credits such as food assistance and health insurance credits or child tax credits; asking for a raise, looking for a higher-paying job, or doing part-time or gig work; selling items online or at garage sales as a side gig.
In Summary
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A spreadsheet can be a great tool for tracking your spending and allocating money to the areas that matter to you, as well as building lasting good financial habits. With all the financial data you need in front of you, achieving your goals can become easier.
Source: https://www.thebalancemoney.com/get-control-of-your-budget-2385702
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