Creating a Basic Budget
In this post I'll list for you the 5 simple steps to create a budget even if you are unfamiliar with budgeting and being on top of your finances. For so many years I lived my life without a real budget. I knew my income and my expenses but I never actually wrote them out and balanced them. My life as a registered nurse allowed me to earn a modest income which started at $50,000 yearly and grew to over $210,000. Sounds like a lot right? One would think that earning over $200,000 a year is complete success. Well I'm here to tell it wasn't. Finally after years of doing my finances blindly, I decided I wanted more so I began looking at my finances differently. I joined groups that offered free info and eventually saw a post by Tiffany Aliche "the Budgetnista". The info I learned by taking her free online challenges and joining her free facebook group have been life changing.
1. List all income- This step is usually the easiest to do especially if your income comes from and employer. Just add up your paychecks for the month. If you happen to one of the lucky people that works for yourself, it may be a little more difficult but it can be done. After you figure all expenses used to run your business add up all your true income. Include in this section all sources including side hustles, child support and any other income revenues.
2. Write out all monthly debts- You have to go over your last few months bank and credit card statements to figure out the total for all your monthly expenses. Be as detailed as possible. Include your routine pleasures as well such as mani-pedis, massages, haircuts, and any other expense. The more detailed the better. You want to include the incidental spending too like the occasional Starbucks run or convenience store spending. This phase is not the time to decide you will cut back on such expenses. You want to know where your money has been going thus far so that you can figure out ways to make the proper adjustments that will lead you to your financial goals.
3. Take all expenses and deduct from income-Now you have to deduct the expense total from your income total. The balance will show how much you have left over once all your bills and expenses are paid. This is simple math. Add all income sources and deduct your expenses. If your balance is in the negative that means you are spending more than you are making. To fix this you must decrease your expenses or get another income stream. Continuing to spend more than you make causes you to remain in debt instead of digging yourself out of it.
4. Use all the remaining income to apply to emergency fund and paying down debt- Now you have to start telling your money what to do instead of it having a life of its own. Decide how much you will allocate to savings and paying down debts. I suggest you pay the bulk of it towards your debt and the remainder should start or add to your emergency fund.
5. Automate-This final step is how you maintain your goals and stay on track. It can be a little tedious but it will be so worth it. Pay all your bills by autopay. Set up an online account to save your emergency fund and automate it too. You want your emergency fund or savings to be a little difficult to access so an online account is the best route. Once you've gotten at least $1000 in emergency funds you could withdraw it and have it accessible while you continue to grow it with the continued automation.