Creating and sticking to a budget is about as fun as getting a root canal. But, if you change the way you think about it, creating – and following – a budget can mean financial freedom and less stress.
Let’s look at how to accomplish your goals in 6 easy steps.
Step 1: Set expectations: Be realistic. Making a change can be difficult and like any change, it can be hard to hit the mark every day. Don’t beat yourself up. Aim to stick to your plan most of the time. If you do this, you are bound to reach your financial goals. Deviating from your budget on occasion is fine, as long as you get back on track as soon as possible.
Step 2: Calculate your expenses. Now it’s time to get down to the nitty gritty: finding out exactly how much you’re spending each month. Gather your bank statements, receipts or check book. Determine what is a monthly expense and what is intermittent, such as insurance payments. Calculate your expenses over a six-month period to get the best picture of your spending. Average this number to get your budget. Don’t forget to factor in unexpected bills, such as unplanned car repairs. A good rule of thumb is to add an extra 10 percent to your spending. That means if you budgeted $1,500 a month, add $150 for unexpected costs.
Step 3: Define your income. This should be pretty simple. How much money is currently coming in? Determine what your net take-home pay after you subtract things like taxes and 401K deductions. Include regular paychecks, side jobs, child support or supplementary income, etc.
Step 4: What do you want to save and what do you need to pay off? After calculating your income and expenses, you can clearly see if you have a budget shortfall or overage. Basically, subtract your monthly expenses from your income. Whatever is extra can be set aside for savings, and to pay off debt.
What if you are short on money each month? It’s time to do some cutting so you have something to save and don’t go further into debt. Check your spending for things like a cup of coffee a few times a week or eating out too much can add up fast. For instance, even if you spend just $5 a week on snacks, that adds up to $260 a year.
If you have extra start by deciding how much you want to pay toward debt and how much you want to deposit to savings. Your savings goals should be geared toward three major things: retirement, emergencies and personal goals, like saving for college, a house or vacation.
Step 5: Write it down and track your progress. Nothing makes you feel better than knowing you are accomplishing your goals. Having it on paper is written proof! In addition, having to input expenses should cause you to think twice before splurging.
Step 6: Review and adjust. Life has a way of changing things up. Priorities shift, we change jobs, move or have children. Put it on the calendar to review your situation every few months and go over your budget to make sure it’s working for your current goals and realities. This will help you stick to it!
Mark Dana Management Apartment Homes can help you live within your budget. Give us a call if you are looking for a new apartment. We have properties throughout Virginia.