It’s time to get on track! In order to live within your means, you have to know what your means are. We mentioned a spending plan (or a budget) on the last page, so let’s talk about what that actually looks like. The hardest part, but also a crucial first step, on your journey to financial wellness is making a budget. Having to sit down with the reality of your inflow and outflow of money cemented on paper can be difficult for most, but it’s essential to understand where you are at financially.
There are two types of expenses: fixed and variable. Fixed expenses are consistent bill payments that are not flexible in how much you need to spend each month (mortgage payment, loan payments, etc.). Your variable expenses are ones that can fluctuate from month to month, such as paying for entertainment, groceries, etc. Your variable expenses are more under your control for how much you spend each month- and therefore offer more opportunity to save money.
Need help getting started? To make a basic budget, follow these steps:
1) Open up a new spreadsheet (or grab good ole’ pen and paper) that will be easily accessible to you in the future.
Pro tip: Don’t forget to hit ‘save’ often!
2) Draw or section off five columns and label them DATE, DESCRIPTION, INFLOW, OUTFLOW, and TOTAL respectively. Fill in the DATE column, starting with either the first of next month or today through for 30 days.
3) Start adding up your assets - or money currently in your possession - and place that total in the first row under TOTAL.
4) List out all of your bills (rent, student loans, groceries, car insurance, etc.) in the DESCRIPTION section next to their corresponding dates of when they are withdrawn within the month. Write out their monthly amounts in the OUTFLOW column. It is very important to be honest with yourself and your budget about all of the amounts you list (no matter how much it may hurt to see).
5) Write in your monthly income in the INFLOW column. Include regular funds you count on receiving each month, such as your paycheck(s).
6) Time to start making sense of those numbers! Start at the top with your first TOTAL and work your way down through each day subtracting the numbers in the OUTFLOW column and adding those in the INFLOW column from/to the TOTAL in the previous row to calculate the new total.
7) If you see a negative number in the TOTAL column at the end of your calculations - it’s time to review your budget. Similarly, if you see a high positive total leftover, then it is also time to review your budget and put that money to good use in your savings (but we’ll get to that later!).