In an election year, fact-checking is hugely important, not just because candidates can lie, but also because the lies are often believable and can cause great harm. However, the same scrutiny that we give others, we often fail to use on ourselves – particularly with our own money habits. Budgeting is a tool to fact-check your money habits and helps you to view your future prosperity goals in the light of truth, instead of fiction. Without it, the little money lies we tell ourselves have a way of derailing our future lives, ruining our credit scores, and sometimes our relationships and the things that matter most to us.
Tips to Start Budgeting
Budgeting works by taking the emotions out of your financial lives and giving you control of your finances. Before you get to the point where budgeting is your sword of truth, you have to do a little preparatory work. Here are a few simple tips to get you started budgeting:
Get Consensus – If you are single, it’s easy to start your own budget and control your own money. If you live with a significant other, you will need to get consensus as the budget should be agreed to by all parties. Before you even look at the potential numbers, define your mutual goals for the budget.
Determine Income – Look at all the sources of income in the household both before and after taxes (gross and net). This way, you will be able to start seeing how taxes take a big chunk out of your income. Also include income from hobbies, rentals, and investment income and not just jobs. They can clue you into how to grow your money.
Categorize Expenses – List all your monthly expenses and categorize them according to what you estimate to be true. This is your baseline. Some useful categories are: credit cards, mortgage, food, utilities, daycare, medical, etc. By categorizing your expenses you will be able to tell if you are too highly leveraged in your debt load or what categories can be targeted for elimination or cost reduction.
Estimate Discretionary Spending – Once you subtract all your monthly expenses from your monthly income, you will have a good idea of how much discretionary spending you have each month. If you are in the negative, you need to reduce expenses or increase income. It’s that simple. If you are in the positive arena, but short each month, you need to look at what you missed in your budgeting.
Track the Numbers – Now, you need to actually take those “fictional” numbers that you guessed at initially, and actually start to track your income and expenses. Find a good spreadsheet or online budgeting program that allows all members of the household to add in items as they appear. Enter bills and expenses each month as they arrive. Keep receipts to verify the numbers later. You will find that you may have budgeted $200 in your fictional world for grocery shopping, but at the end of the month you actually spent $400. After a few months, your family budget should start to tell you everything you either didn’t want to know or hid from yourself accidentally.
Plan to Succeed – Don’t focus on failures, instead plan to succeed with the new facts. Keep a closer eye on runaway expenses, or figure out a system to keep from overspending. You can schedule physical rewards for when you meet a goal and acknowledge the hard work it took to meet success.
This blog post is provided courtesy of National Payday. Check out their Loan Blog here.