If you’re trying to work on reducing financial stress, massive debt, financial troubles, or want achieve more financial goals this year, the best way to get there is by setting up a budget and sticking close to it. If you find yourself living beyond your means and can’t figure out where your money is going every month then a budget should be your top resolution this month. You need to know where you stand financially before you can achieve your goals and reduce your debt, and the best way to do that is by having definitive proof of what you spend your money on.
Most financial experts recommend a 50/20/30 rule. Fixed costs such as mortgages or rent, car payments, utilities, and all other recurring monthly charges should equal only 50% of your pay. Savings, financial goals, money set aside to pay down debt and emergency savings should equal 20% of your pay. The last 30% of your pay should go towards daily expenses, such as groceries, gas, and hobbies. While this amount is flexible depending on your personal expenses, it should be relatively similar to this ratio.
To figure out where you stand, start a spreadsheet or itemize your expenses. To create a budget spreadsheet, collect all of your bank statements, online payment receipts, and paper receipts and detail all of your major expenses according to what you spend your money on shown in the statements and receipts you collected. The major categories for your spreadsheet should be similar to the following: mortgage or rent, household bills, utilities, gas and car payments, insurance, education, kids’ expenses, travel, and entertainment. You might also want to consider adding a category for different types of savings, such as retirement savings, general savings, automobile savings, and emergency savings into your budget.
Once you have a better understanding of where you stand financially, you can make better decisions on how and where to trim your expenses or redirect money to different areas in your budget. This will help you plan for investing so you can create wealth for your future. Budgets will also help you live within your means, show you where you need to spend more to pay down non tax deductible credit card interest, and how you can better accomplish financial goals. For more information or help, give us a call today.