Money Series: How to Budget Plan and Gain Control of your Finances

Money Series: How to Budget Plan and Gain Control of your Finances

Welcome to the second part of our Money Series.  If you are just joining us please take time out to check out the first post in this series.

Read: Money Series: Money Affirmations…Will yourself into financial freedom.!

In the second part of our Money Series we are going to talk about how to make a budget.  Now before you decide that you don’t want to be bothered with keeping track of your spending, let me convince you why budgeting works.

The Benefit of a Written Budget

The biggest and most important benefit of having a budget plan is eliminating stress.  When we don’t know where our money is going we never know what we can or can’t  afford.  For example,  your girlfriends want to go on a trip next year that will cost about $1200.  Today,  without a budget you think that you can’t afford it because you don’t have the money.  But,  in reality a budget can change that for you.

Let, me explain.  Right now you spend $6.50 on Starbucks 5 days a week.  You go out to Dinner once a week and spend about $20 per outing.  Then,  you go out every other Saturday and spend about $35 dollars on admission and drinks.  You also do brunch twice a month and spend $40.

Let’s look at the numbers.  Right now you’re spending $1560/year on coffee,  $960/year on eating out,  $840/year on partying,  and $1920/year on brunch.   In a year’s time that’s $5,280!  With that type of spending you can take 4 trips!  So, as you can see with a little adjusting you can make your money work for you.

We spend smaller amounts of money freely because we don’t see the bigger picture.  But,  budgeting can change that by showing you exactly what you can and can’t afford as the above numbers prove.  Numbers don’t lie.

How to make a Written Budget

Ok first things first.  Gather all of your bills and two months of bank statements.  Now,  grab a pencil,  note-book,  and calculator.  The first thing you’re going to do is figure out your income.

List your net income

Your monthly net income is any money coming  into your home after taxes.  This includes your take home pay, extra cash from side jobs, alimony, social security, etc.  Write this amount/s down and total it.  This is your total net income for the month.

List your expenses

Next you’re going to gather all of your bills/expenses for the month and list them.  You should have two types of expenses,  fixed and variable.  Fixed expenses are those expenses that never change like your rent or car note.  The amount you pay for those expenses remain the same from month to month.  Variable expenses are expenses that change from one month to the next like gas, clothes, and entertainment.

When listing your variable expenses look at your bank statement to get an average of your variable expenses.

Total your Income/Expenses

Now that you have your separate list of income and expenses.  Total each list separately and subtract your total expenses from your total income.

The total that you get is how much money you have left over for spending monthly.  Now if you are in the negative it’s time to go back and look at your variable spending and make adjustments.  Do you really need to have Starbucks everyday?

Take money from your variable expenses like entertainment, dining out, clothing, lunch, etc. and put that money were it counts. Like that trip that you want to take a year from now.  Or, even better,  an emergency savings.

Intentional Spending

The purpose of your budget is to know exactly how much money is coming in and where it is going.  When you get a handle on where your money is going you can be intentional with your spending.

Take what you’ve learned about your budget and be intentional in how you spend your money.  That means paying down debt,  saving, and finally having money to do the things you want to.

Next week in part 3 of our Money Series we will talk about what to do if you have a negative balance after subtracting your expenses from your income and what to do with a positive balance.  We’ll also talk about how to pay down debt!

Homework:

1. List your debt from highest to lowest,
2. Find ways to possibly scale down your expenses.  (eat out only once a month instead of 4x per month)

photo credit: Captured Heart Wheat Pennies via photopin (license)