Creating a budget often finds its way to the top of the New Year’s Resolution list. It often, however, finds its way to the bottom of the list when well-meaning individuals become daunted by the idea of creating a complex set of charts to track their financial lives.
The good news is that it doesn’t have to be complicated. The basic premise of a budget is tracking what’s left after you deduct your expenses from your income. It’s to give you a sense of how much you save or how much you owe at the end of each month. With the right system in place, you can ensure that your spending is in line with your income so that you never have to carry a credit card balance again.
You can plan a trip without a destination, but it might end up with a series of twists and turns and take you somewhere you don’t necessarily want to go. The same thing goes for your finances. You can set a budget and try to save money, but the first step is to set goals. This could mean either savings goals or debt repayment goals. Make sure to attach timelines to your goals in order to help steer your budget.
Find a system that works
For the longest time, I was afraid to start budgeting because my husband had created what I found to be a complicated series of Excel charts with vlookups, pivot tables and other functions I didn’t quite understand. Then, I realized that all I had to do was set up a single chart with the lines I needed and some simple formulas. If this still isn’t your speed, there is now an array of options online for the budget challenged. Apps like Mint allow you to seamlessly calculate your spending and track it against your income.
Figure out your income
One of the two most important steps to creating an accurate budget is figuring out your income. For some, it’s as easy as taking a look at your paystub and your take-home pay after taxes. If this is the only income you receive, it’s safe to put this into the income line of your budget. If your income fluctuates, it becomes a bit trickier. In this case, you might wish to track your income over a few months and figure out reliable average or minimum earnings to track your spending against.
Budget and track your expenses
Before setting your budget, track your expenses over a few months to look for trends. This is where you need to be realistic and come up with a figure that makes sense for your lifestyle. If you regularly spend $500 on groceries, for instance, and put in $300 as your budgeted amount, you’ll probably be disappointed to find that you can’t reach that number.
Track your progress
It’s not enough to set a budget and forget about it. Review your progress over time and set regular checkpoints (i.e. quarterly) to review your targeted and actual expenses to ensure you’re on track towards meeting your goals. Here’s where you decide whether you need to adjust your timeline or if you can find areas to cut down further in order to get to where you need to be.
Budgeting is the surefire way to put more money back into your pocket in 2018. Create a realistic budget that can be adjusted over time to grow with your evolving needs. Understanding your spending habits empowers you to reach your goals quickly and more effectively. Make this year the year of the budget – you won’t regret it.
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