For some of us, keeping accurate, up-to-date records of all our financial accounts, including where and how much in each account, is a breeze. Then, there’s the rest of us. Knowing exactly how much is coming in monthly vs how much goes out (and what it’s spent on), balancing a budget, or the thought of even creating a budget can be anxiety-inducing. If things are “working,” why bother?
Whether in your personal life or your business, if you’re always forgetting to pay your bills on time or if your debt is growing larger than your monthly income, it’s time to think about financial organization. By taking control over your finances, you can reduce the monthly stress of making sure all your bills are paid and develop financial goals and begin working towards them.
While personal finances are structured differently than a business’s, the principles of financial organization are the same. We are addressing how to create and managed a budget you can live with, which is the first step in any financial management system.
When creating a budget, it’s important to record all your income and expenses openly and honestly so you can accurately assess your complete financial situation.
Keep track of all monthly income and expenses. “Hiding” money or justifying certain purchases outside of your budget will quickly derail any financial plan you make, so now is the time to lay out all your income and spending.
Calculate your income by reviewing the net income on your most recent paystubs. While your gross salary may be a certain number, expenses like taxes, health insurance premiums, 401(k) contributions, etc., will lower your take-home pay, so it’s important to look at your net income.
Next, determine your expenses by reviewing bank and credit card statements and making notes about what money went where. Every budget has fixed and variable costs.
- Fixed costs are expenses like rent or mortgage, insurance premiums, car payments, subscription fees, etc. Essentially, these are the expenses that are the same every month. We haven’t included utility bills in this list because if you’ve glanced at your electricity bill this month, you know that falls into the variable expenses list. It’s important to have a good handle on what the reliable expenses are first before you can plan for variable costs in your budget.
- Variable costs are expenses that vary from month to month. Groceries, gas, clothing, entertainment, meals out, and yes, utility bills, will vary from month to month. Because these expenses are, well, variable, they can be more challenging to budget for.
Once you have an outline of your income and fixed vs variable costs, you can begin to lay out a budget. Is there leftover money at the end of each month? If so, do you have debt you can pay down or a savings or investment account? If you’re running in the red, you can review your variable costs to determine where you can scale back or eliminate entirely from your budget.
Your budget will change over time and should be considered a guideline, not a strict rule. If your income or expenses change, adjust your budget accordingly.
Pro tips to help manage your budget
- Create two bank accounts- one for personal expenses and one for bills. This strategy helps avoid overspending and ensures you have enough in your account to cover your bills.
- Keep bills in one place and create a list of recurring bills so you know when to expect them. Don’t risk ruining your credit by forgetting to pay a misplaced bill.
- Pay bills the day you get them. Avoid unnecessary late fees and have peace of mind.
- Seek professional advice. Establishing a relationship with a financial planning expert, such as Tina Curtis, can assist you with financial planning and decision-making. Whether you have a good budget in place and want guidance on how to optimize it or have never budgeted before, Tina has the experience to guide your financial organization thoughtfully and professionally. Schedule your complimentary consultation with Tina today.
