One of the most common frustrations we hear at Dunncreek Advisors has to do with sticking to a budget. While budgeting isn’t always fun, it’s a critically important way to live within your means, and to prepare yourself properly for retirement. If you’re looking to setup a realistic budget for you or your family, follow the following steps.
Itemize Your Expenses
When you’re deciding to create a budget, the first step is to determine how much you’re spending each month. Look at bank statements, credit card statements, receipts and other financial information to determine an accurate account of your monthly expenses. Try to add up everything you’ve spent for the last 6 months to a year to ensure you’re factoring in irregular expenses that may only occur every few months, or even once per year.
Itemize Your Income
The next order of business after determining your expenses each month is to figure out how much money you’re bringing in each month. Start with your base salary and add in any other gifts or other sources of income.
Set Realistic Savings and Debt Payoff Goals
Before you can determine if you are able to tackle debt, or build up your savings, you have to first determine if you have a positive cash flow each month. To determine if this is the case, simply take your monthly income and subtract all of your monthly expenses. If you’re left with a positive number you can begin to use that money to tackle debt or begin to build up your savings. If you’re left with a negative number it’s time to take a hard look at your expenses to determine if there are any that can be cut. Try to think about monthly expenses that are nice to have, but not necessary, such as cable TV, eating out, shopping, etc.
Consistently Track Spending and Progress
Be sure once you’ve created a budget that you continue to track all of your income and expenses each month. This way you can quickly see what type of progress you’re making in terms of savings or paying off debt. Also, by tracking each expense, you’ll likely find that you’re less likely to splurge on certain things that aren’t a necessity.
Keep the End Goal in Mind
It’s important to stick to your budget as best you can, but it’s also important to be realistic and understand that from time to time you may fall short of your goals. As long as you get back on track, you’ll be amazed at how a budget can truly transform your financial life.
Interested in Learning More About Budgeting?
At Dunncreek Advisors, we’re well versed in budgeting to help ensure our clients are properly preparing for the future. If you think you need a bit of help in this area, feel free to reach out to our team of fee-only financial advisors today. As always, keep in mind that Dunncreek Advisors does not provide legal or tax advice.