Happy Master Your Money Monday!!!
One of the first things that you want to do when you decide that you are the master of your money is create a budget.
Budgeting simply put is a process that involves calculating how much money comes in and how much goes out. By knowing this, you will be able to make informed decisions about where your money goes.
Even if you are a billionaire, it is important to budget to plan for the unexpected and your future!
Creating a budget also protects against lifestyle inflation.
What is lifestyle inflation?
That thing that most people do when they start spending more because they got a raise or new job.
Budgeting is also a tool you can use when you are determined to get out of debt and are deciding to prioritize your long-term financial goals.
When we do NOT have a budget, our spending adds up without us even realizing it.
When we make budgeting a priority, it helps us to keep our spending in perspective and make it easier for us to stick with our financial plans!
Think about it, over a course of a month, a daily expense, like a sandwich eating out for lunch every day for $7 equals about $150 a month on fast food. That money could go toward your emergency fund, a retirement account, or paying down your debt.
Why do you struggle with budgeting?
- You think it has no value when it really does
- You fear the process
- It conflicts with your desire for instant gratification
The long-term benefits of budgeting are transformational.
Below I share 6 steps that will support you in developing a budget that works for you!
- Figure out your after-tax income. If your employer takes out money for health insurance or a 401(k), take note of the amount. You will factor those numbers in later
- Calculate any additional income. Estimate how much extra income you receive each month. If the income is taxable, deduct a percentage to cover taxes.
- Calculate your expenses. Start with your necessities. The expenses you cannot live without. Be mindful to not confuse needs with wants. Tip: If your employer takes out money for health insurance or a 401(K) you can note that here. For example, if your employer deducts $125 per month for health insurance, that is a necessary expense. But make sure to also count this expense as income, that way you are not budgeting to health insurance twice.
- Subtract your needs from your income.
- Determine how much you want to allow for your wants. Whether that is dining out, traveling, or a gym membership. You subtract that from what you have left after you have deducted your necessities.
- Save. Once you have deducted both your wants and needs, make sure there is something left for savings! Make sure you are putting some money toward your emergency fund or a long-term investment savings account. Even if it is a small amount, you will see a difference!
Thank you for reading!
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