Five Steps to Budget Planning

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“What would you like to see yourself accomplish with your money?” I ask this of every person that’s on my computer screen during a video session. And while the answers are varied – wanting to go back to school, buy a house, take a vacation – the overall theme is always the same. People want to feel in control of their money, rather than always wondering if there will be enough and if they’ll always feel guilty when they spend on something fun.

The solution is to create a plan. That way, you are mindful about where the money is going, and you’re able to tell it ahead of time what your priorities are. It’s the difference between taking a journey and looking at your feet the whole time (worrying about the next bill and paycheck) versus looking up and to the horizon at the beautiful vista around you (what your money can truly do for you).

Read more on how to find out how to create a budget plan in five easy steps.

Step One: Calculate Monthly Income

Take into account only what you can count on each month. It could be a social security check, your employment, or child support for example. Don’t include irregular bonuses or seasonal work if you’re not sure it will be available this month. If there is a lot of variation in your checks depending on hours worked, try to take a good average by looking at your last couple month’s of paystubs.

Step Two: Make a List of Monthly Expenses

The single best way to know what you’re likely to spend next month is to see what you spent recently. Pull out your credit card statements and/or bank statement for the last 2 months and read through them. You should be able to identify the costs that are the same month to month – rent, car payment, insurance, etc. For flexible costs, many people underestimate when they guess expenses.

Personally, I like color-coding the bank statement. Green highlighter for grocery store, pink for entertainment and restaurants, yellow for gasoline, blue for household items and costs. Add up the categories to see what you’ve been spending recently so that you have a baseline. You can always adjust the plan if you feel spending is too high in a category. Plus, don’t forget the seasonal costs like upkeep on the car or school clothes for the kids. While it’s not a cost every month, ideally you want to set aside a bit each month so that you’re ready with sufficient savings when it’s needed.

Step Three: Determine your 2021 Financial Goals

The budget shows us the “what” and “how,” but without a “why” the plan just won’t stick. Why are you personally investing the time and energy of creating a budget plan? Are you ready to be credit card debt free? Wanting to purchase a home? Or renovate that downstairs office now that you’re working from home? What is it that is going to motivate you to keep watch of the finances?
I always challenge clients to have a big goal – something that you can work toward this year, but also something short-range that you can accomplish in no more than 2 weeks. Get that inertia going! If you want to build savings, aim to talk with your bank or credit union on your day off this week to open a savings account. If you want to pay off old debts, aim to pull a credit report during your lunch break today and see what’s there. Manageable steps create the path to success.

Step Four: Adjusting Your Spending/Expenses

Assess the budget plan – do you have enough income to cover the various expenses and obligations? Or are you running short each month, or seasonally needing to take out loans to cover costs? If so, consider options for how to make things balance. Can you take on a few extra hours at work? Side income gigs such as Door Dash or other delivery services? Tap into local resources? For example, our school systems are providing free meals for school-age children which gives them a quick breakfast and lunch option they can even heat themselves. Talk with your cell phone, internet, and/or cable provider. It’s amazing how they can find cheaper packages when you tell them you’re shopping around and seeking a better deal. Create a meal plan for the week and shop based on that rather than stocking the fridge with items you won’t use before they spoil. There’s no one best way to cut costs if you need to, but there are a lot of things to try, and the right one is the one that works for your family.

Step Five: Use our Budget Worksheet

For a simple budget option, check out our budget planning template , cash flow statement. It lets you enter income in the left-hand column and common expenses on the right. It’s a great starter budget that you can fill in within just a few minutes. And it’s concise enough that you can pin it up on the fridge or mirror to keep you mindful of what’s coming up with your finances.

No matter whether you use one of these resources, an old-fashioned ledger, or specialized software, the goal is the same: To plan ahead of time what you need for promised obligations, set aside for savings and irregular costs, and then for your goals and future.

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