Everyone has a preferred way to handle personal finances. Some of us spend what we’re comfortable with and look at the bank account at the end of the month. Others of us meticulously track every single cent that leaves the wallet, then create a detailed personal spending analysis at the end of the month. Can you guess which one I am?
To be straight with you: budgeting strategies and techniques vary across the board, and the same strategy that works for me might not necessarily work for you. However, crafting and conceptualizing a budget very rarely deviates from a prescribed set of steps. Though you might have your own way of keeping track of finances, we can all benefit from some budget creating advice. Here’s mine.
1. Set Goals—Know the difference between your immediate and long-term goals. Immediate goals focus on using your money today; long-term goals deal with saving and spending over decades. Both are important, but set priorities in order to understand your financial goals accordingly. Make sure you allow for enough money to cover your monthly expenses, then craft long-term goals.
2. Calculate Your Income and Expenses—After you set your financial goals, you’ll need to do the math on how to reach them. Start by making a list of your monthly income sources, including your salary (after taxes), regular bonuses, and side gigs. If you don’t know the exact amount, estiate. Total them to find your monthly income. Then, calculate your expenses. These should be separated into three categories:
a. Fixed, or recurring expenses that don’t change, such as mortgage, rent, and loan payments.
b. Variable, which includes recurring but changing expenses, like groceries and utilities.
c. Discretionary, or optional expenses that allow you to live your damn life.
To find these, spend a month tracking your spending and separating them into categories. Even if you can’t remember exactly how much that drink you bought for that guy was, an estimate will at least allow you to have a working number.
3. Analyze Your Spending—What can you cut to reach your goals? What do you wish you could spend more on? What should you spend more on? Make a list and put it in your wallet.