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Hey there, Budget Brigade!
Today, I'm excited to share with you the three simple steps to mastering your budget. Budgeting doesn't have to be complicated or overwhelming. That’s why I like to break it down into manageable steps to help you take control of your financial destiny. So, let's dive in and explore these three key strategies together!
Step 1: Take a money inventory
The first step in mastering budgeting is taking a comprehensive money inventory. This involves making a log of all the money going in and out of your accounts. Start by making a list of all of your income and expenses. If you can’t remember them all right now, don’t worry. You’ll continue to focus on developing your money inventory over the course of a month to do our best to not miss a thing.
Putting together your money inventory may feel like a drag, but remember…you can't manage what you don't measure.
Your inventory can be hand written in a journal, or typed out and organized in a spreadsheet. Whatever works to help you remain consistent in tracking your cash flow is what I want you to do. List all your sources of income, including wages, salary, bonuses, side hustle earnings, and anything else. Next, list all your expenses, both fixed and variable, such as rent or mortgage payments, utilities, groceries, transportation, entertainment, and savings contributions. Don’t forget those irregular expenses like annual property taxes or bi-annual car insurance.
By taking a comprehensive money inventory, you'll gain valuable insights into your spending habits. Sometimes just seeing our money flow can bring things to our attention that we didn’t see before. This will set the foundation for building a budget that aligns with your financial goals and priorities.
Step 2: Right-size your budget.
Once you have a clear picture of your financial landscape, it's time to right-size your budget to ensure that your income covers your expenses. This step is where we start to understand if we need to either reduce our expenses or increase our income to provide us with the joy-filled life we desire.
Before we jump in, I want to share that I’m a fan of the monthly budget because most bills recur monthly, but some other great methods may include a pay day to pay day budget or a weekly budget depending on what feels most manageable to you. Let’s move forward with the assumption that you too will be using a monthly budget.
Remember that money inventory from step 1? Let’s revisit that and do a bit of math.
Start by revisiting the expense list in your money inventory and write out how much each of those expenses cost you per month. If you have irregular expenses make sure you adjust the amount to reflect how much you should set aside each month by splitting that amount evenly by the number of months you have to save up for that expense. For example, if you have an annual expense you can just split that amount by 12 and note that as your monthly expense for that line item. Add all of your expenses together to find your total monthly expense number.
After you have an understanding of how much each expense costs you per month, take a look at your money inventory income. Note how much money you bring in per month. Let’s look at an example of someone who is paid a fixed amount every other week. If that is the case, they will multiply their paycheck by 26 and then divide it by 12 to find their monthly take home pay. If you make an irregular income, say you have a commission based job, I want you to take an average of your last 3-6 months of pay and use that amount for this exercise. Add all of your monthly income sources together to find your total monthly income number
Does your monthly income equal or exceed your monthly expenses? If it does, congratulations! You can proceed to step 3. If it doesn’t, we have to chat.
To begin to balance your budget (aka make at least as much as you spend), it's crucial to define your "why". Why are you looking to have a better handle on your money? Your “why” is the best tool to use to prioritize expenses and is something you will need to revisit regularly as we work hard to build the life you want.
By having a clear understanding of why you're budgeting and what you hope to achieve, you'll stay motivated and focused on your financial goals.
Once we’ve used our “why” to balance our budget, either by increasing our income and/or decreasing our expenses, we can move onto step 3.
Step 3: Think well-thy.
The final step in mastering budgeting is thinking "well-thy". This is the step where we reach for our dreams. We are taking our budget to the next level by working to have our income exceed our expenses and using our excess income to achieve our goals. In this step, we shift our mindset from one of scarcity to one of abundance by prioritizing our why over material possessions or societal pressures to build a life of joy, health and well-being.
It’s time to think long terms and understand how your budget can help you achieve your financial and lifestyle goals today and in the future.Do you need to find a higher paying job or start a side hustle to increase your income? Would you rather continue your streaming subscriptions or retire early? Would you rather enjoy a daily coffee run or be able to take your dream vacation in the future?
If you’ve chosen to prioritize your daily guilty pleasure over saving for future fun that is entirely okay! No judgement here. This is all about being intentional with our spending, not fitting into any sort of financial mold. If you are making an intentional decision to go out for drinks with your girlfriends every weekend because it keeps you grounded and happy, even though it means you may not be able to save as quickly for a downpayment on your future home, then I am all for it.
Knowledge is power. The goal here is to have you be knowledgeable about your money so you can make informed and intentional decisions for your happiness.
By thinking "well-thy," you'll achieve true financial freedom by having money habits that support your overall well-being and happiness.
Mastering budgeting is all about taking a systematic approach. If you have a system in place that is easy to follow, you'll gain control of your finances, achieve your financial goals, and live a life of joy and fulfillment.
<3
Megan
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Disclaimer: I am not a financial advisor. The information provided is for educational purposes only. Please consult with a certified financial professional before making any financial decisions.
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