This is the first in a four part series on Resolutionizing your Finances. Visit Other Better Living Network sites focusing on other areas of your life.
Do you wonder where your money went at the end of the month? If you don’t know that tells me you’re not preparing a zero-based budget or maybe any kind of budget.
I used to work that way. I paid my bills and whatever was left over was spent without any kind of plan. Not anymore! If you want to control your money instead of the other way around, then keep reading.
This is a simplistic three step approach to budgeting. I could write a whole book on it (and I may yet someday) but this will get you started on making a change TODAY!
Create Financial Goals
Money is a tool that you need to put to work for you. Creating a plan gives you direction. To get you started, think of it as a financial wish list.
What do you want to accomplish in the next year? This will be the priority for excess income in the budget. Then add in some mid-range goals for the next five years and then long term goals such as save $1 million for retirement.
It’s hard to know how much money to allocate to the various budget categories if you don’t know the dollar amount spent every month. For one month just track where every dollar goes.
When I went through this exercise at the start of my Financial Peace journey I put all receipts in the same pocket in my purse and wrote down the few cash transactions on a small notepad.
Draft A Budget
Armed with the information from the previous two steps, you are ready to draft the first budget. It’s a draft because your budget should be continually evolving. I tweak mine month to month based on how it went the previous month or the time of year (higher utilities in February than April).
Create categories based on the spending you tracked. Common categories are housing, utilities, food, transportation, clothing, entertainment, personal (hair, pet, etc.), medical, savings and charity. If you have debt, don’t forget that one!
Start building out how much money in each category and add line items for the various costs. For example, in the transportation category I have three line items: gas/oil, maintenance and insurance. Once I become debt-free, I’ll add a line item for car replacement.
Don’t forget to plan for non-regular expenses. Some examples are property taxes, insurance, and car registration. They don’t happen every month but when they do it can be a pretty big bill.
Plan for every dollar! If you don’t this money will end up accounted for at the end of month.
You can also find help in personal finance books. Save money and check this section out at the library.
Sign up for the LearnVest financial boot camp. You’ll get a series of emails starting today and they have a free budgeting webinar on January 12th.
This should get you started and next week we’ll take a look at savings. By the end of the month you’ll be in charge of your finances.