It’s difficult to stay on top of your finances. You’re looking for a way to better manage your money. You don’t know where to start, though. Here’s what savvy individuals do to manage their money and what you can learn from them.
List Your Expenses
The first step is to list out all your fixed expenses. Write down every single expense — most people don’t do this, and then wonder why their budget doesn’t work. After that, list out all the expenses that fluctuate from month to month. These might include things like eating out, dry cleaning, hobbies, and other bills or expenses that aren’t consistent from month to month.
Take some time to review your old bank statements and check registries. Calculate and estimate figures for these expenses and move on to income.
It seems simple enough, but lots of people goof this up big time.
Write down all sources of net, not gross, income. Net income is income after taxes. This is what matters because this is the amount of money you have to spend. Even if you were injured on the job while working, and you don’t have much in the way of money, write it down. You still need to know where you stand.
Separate Out Wants And Needs
There are usually two categories of expenses: wants and needs
Wants are things that you don’t need, but you want. For example, let’s say you enjoy going out to eat every Friday. You don’t need to do this, but it is fun. At the same time, it’s an expense you could do without.
Now, take your grocery bill. It too is flexible in the sense that you don’t need to buy junk food for the week. But, it’s necessary in the sense that you need to eat. So, this could go into a flexible spending plan that fluctuates throughout the month and year, depending on what you buy, and how much.
Then there are the expenses you need, like your mortgage or rent.
Set Realistic Expectations
Make sure your expectations are realistic. This is easier said than done. But, the object of successful budgeting is to help you plan out your actual expenses and setting goals that you can actually achieve. So many people miss this that it should be taught in school at some point.
Financial goal-setting is only possible when you have a good budget.
Consider Buying Software
Budgeting software won’t replace a bad budgeting system, and it won’t force change in your habits, but it will help nudge you in the right direction. It will also help you simplify the process of saving and managing money.
Get Everyone Onboard
It’s difficult to maintain a budget when everyone isn’t on board. Make sure that the budget is known in the family, that everyone contributes to it, and that your husband or wife is “with you.” If your spouse isn’t aware of it, or resists following it, then the plan will fail. You must be able to talk over your finances and make plans that both of you can stick with.
Lawrence Bell is a family man who works as a financial consultant during the day. He knows firsthand how difficult it can be for families to manage financially, and shares his knowledge online.
Love Counting My Pennies?
Sign up to get our latest content by email.