I think it is safe to say that we all want to live on an island and dive into a pile of money like we are Scrooge McDuck. From the first time we ever got an allowance to the first paycheck we ever received, we learned that money was important. Sadly, schools don’t really teach you about money management, and most of our parents didn’t either. It’s not until you are out on your own, trying to survive, that you start to realize just how hard it is to be financially responsible.
What if I told you it wasn’t hard at all? One of the base principles of being financially sound, is knowing what you are doing with your money.
What is a budget?
A budget is the single best way to manage your money. It breaks down to a simple idea: income vs expenses. The easy way of saying this is what money you have coming in vs what money is going out. This requires you to know how much money you make, what you spend your money on each month, and helps you to know how much you should have left over. I hope that by the end of this post you can have a better understanding of the way your money flows, and that you can use it to maximize your money management skills.
Why is a budget so important?
The reason that budgeting your money is so important, is because many people have no idea how much they really spend month to month. They get their paycheck, deposit it, and then get to spending. How many times have you opened up your mobile banking app, and had to ask yourself “what is this transaction?” or even worse “where did all my money go?” If you have a budget in place, you have a way to know the amount of money you have available to spend, that way you don’t get yourself into a sticky situation.
How do I write my budget?
The first thing you are going to want to do is grab a pen and a piece of paper. You can use the notepad on your phone if that works better for you, but I tell you to actually write it down because studies have shown that physically writing something down helps you to remember it better than typing. It would be helpful to remember what your budget is, right? The next step is to make two columns. One column is where you are going to write down how much income you bring in, or you and your spouse/family members bring in each month (after taxes). The other column is where you are going to write all of your expenses. And I do mean ALL of your expenses. Even the little things have an effect on your budget. Expenses are anything that you spend money on monthly. These are things like:
- Car Payments
- Daycare Costs
Make sure that you write everything down. I mean really try to rack your brain. If you smoke cigarettes, write that down. If you order a pizza every Friday night, write that down. It is better to over estimate your spending and underestimate your income when writing a budget. That way if you’re off you have more money than you thought and not less. When I write my budgets I even write down a miscellaneous purchases amount for impulse buys or things that might come up that I couldn’t plan for.
Figure out your final budget amount
Once you have written out your budget, the final step is to add up all of your expenses and subtract the total from your total monthly income. You should end up with a positive number. If you do not end up with a positive number, this means that you are spending more money than you are making and that is definitely not good. If you do end up with a positive number then congratulations! You just finished your first budget! Any extra money that is left over can be used to plan vacations, take your spouse out to dinner, or my personal favorite, save it! The more you save each month, the less stressed out you will be about money. There is no better feeling than knowing you have a safety net incase anything goes wrong.
Thanks for Reading!
I hope you enjoyed this post and I look forward to helping educate you and help you navigate the crazy world of personal finance! If you liked this post feel free to leave a comment or a like, and follow the blog for more tips! Thank you!