Budgeting is a fundamental financial tool, not a fad that falls out of favor. Think of it as a timeless tactic to get you on the right trajectory to accomplish your goals. And it doesn’t have to be painful if you put it all in perspective.
Basic budgeting is still the best way to know where your money goes every month. So why not take a new approach and make it easier to get started?
Take 10 minutes and consider the following:
Have a goal.
Managing your cash flow helps you make smart life choices, be in control of your financial destiny, and gets you to your financial goals faster! The key is knowing why you’re putting in the work. For some, the gratification of planning for the future is rewarding enough. For others, identifying a goal like saving for annual travel or owning a home may be more motivating.
Know your worth!
Understand your monthly take home pay so you have a clear line of site regarding your resources.
What’s your baseline?
What does it cost to run your life in the most fundamental way? Know your baseline. Add up your rent/mortgage, average monthly utilities, car payment, insurance and gas, cell phone bill, student loan or other debt obligations and average grocery bill. This is your baseline budget — the non-negotiable expenses.
Prioritize your lifestyle must-haves.
Budgeting doesn’t have to be painful. Half of this exercise is knowing where you are and learning to prioritize what you want in life. Think about what you enjoy and hate to give up — traveling to see family, dining out on Saturday nights, season tickets to a sporting event, or getting your hair highlighted. Add that number to your general monthly expenses.
Choose your optional luxuries.
These are lifestyle items that we like, but if we had to, could cut back on. Examples include shopping for clothing, coffee each morning, buying lunches or take-out dinners, and concerts. Lifestyle and luxuries vary from person to person, but knowing what they are and how much they cost can be a real wake-up call.
Now that you have your numbers, time for a little math:
Income – Baseline – Lifestyle – Luxuries = Savings!
Use this formula to calculate what you need to save to get to the goal number you want. Generally, if you’re saving at least 10% of your income, you’re well on your way. If not, and the luxuries are the reason why, it’s time to start prioritizing!