Budgeting is one of those things that most of us don’t want to talk about—but it has the power to change our lives for the better. Sure, it might be uncomfortable, but with just a few tweaks to what you’re already doing, you might discover how to unlock your financial potential. Here’s how.
Know Your Income … and Your Spending
The first step to setting a solid budget is knowing your income. Write down how much money you make throughout the month. For some people, it may just be their paycheck from one job, but for many, this includes your side hustle, too. Whatever your situation is, keep track of every penny you earn in a month.
Likewise, track your spending by looking back on the last 30 days. Where did your money go? Your money reveals your priorities, so look back at what you thought was important enough to buy. For example, print out statements from your bank for the last 30 days and highlight and add up how much money you spent on eating out or extras. The results may surprise you.
Set Your Priorities
The next step is to set your financial priorities. This should be a serious conversation you have with yourself and anyone else you share finances with (like a spouse or significant other). Talk about the most important bills that need to be paid: things like your rent, electric bill, payments, and groceries. These are the items that get paid first (or money set aside for them); they are non-negotiable and have to be paid no matter what.
Once you’ve taken care of your bills, talk about other financial goals. Are you looking to get out of debt or boost your savings account? How about establishing an emergency fund to prepare for the unexpected? Dave Ramsey, a financial advocate, advises having $1,000 for this very purpose, so you don’t go into debt when something happens.
Now that you’ve established your “have to’s,” talk about the things you want. Having things you want to spend money on is just as important as your bills and helps you experience new things. Maybe you love to travel and are planning a trip! Or maybe you want to buy that new book you’ve been aching to read. Whatever it may be, write down those non-essential expenses.
Tell Your Money Where to Go
Once you have your roadmap of expenses for the month, you’re ready to put pen to paper (or finger to phone screen) and start doing your actual budget. There are lots of ways to do this, whether it’s a paper budget or an app on your phone—it’s important that all your money has a place to go.
If you have automatic payments set up, it’s a good idea to have a separate checking account you can dump your “bill” money into when you get paid, so you aren’t at risk of spending it by accident.
But what if you get to the end of your budget and have money left over without a place to put it? Good for you! Having a line on your budget for “slush” money or money you can spend however is a fun way to buy things you may not have realized you wanted, or to pay down debt even faster! Just make sure to assign it there so you can track it.
You will always need to adjust your budget, and that’s okay. Your budget is a living document that will evolve as your finances do.
What happens if you’re doing your budget and the money runs out before your expenses do? This is reality for a lot of people, so don’t panic. There are two ways to fix this: Raise your income or lower your expenses. Neither are quick options, but they can be done if you want it badly enough.
Lower Your Expenses
Lowering the amount of money you need every month is a crucial part of stretching your dollar. This is especially helpful once you’ve already established what you’re spending your money on. Look for places in your budget to cut back. Do you really need to eat out three times a week? Or keep spending money on a gym membership you don’t use? Why not try cooking from home and doing your workout in your living room? Be tough and pare down until you can live within your means.
Living within your means is good financial advice no matter your age. When you’re self-disciplined enough to control your money and spend it on things that matter, you can make it work for you and not the other way around.
Raise Your Income
Raising your income is sometimes easier said than done, especially when you need money for next month’s rent. Think about a few of these options:
- Host a garage sale! You probably have some usable stuff lying around your house that you don’t need anymore. Why not sell it at a used price to someone who could use it?
- Look for short-term work. Temp agencies are a great way to find some work in just a few weeks.
- Start a side hustle! This is potentially the most powerful thing that you can do for your budget. Look for ways to make money in your non-productive time. Be open minded and explore all options. There are more non-traditional opportunities to earn money now than there ever has been. When your only tool is a hammer, every problem looks like a nail. Try learn to use another tool. It just might make the problem easier to solve.
Looking to bring more ways to pump up your life? Read our blog “How Serving Others Can Affect Your Personal and Business Life.”