Do you ever wonder where your money goes each month? Does it seem like you’re never
able to get ahead? If so, you may want to establish a budget to help you keep track of how
you spend your money and help you reach your financial goals.
Examine your financial goals
Before you establish a budget, you should examine your financial goals. Start by making a list of
your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s
college education, retirement). Next, ask yourself: How important is it for me to achieve this
goal? How much will I need to save? Armed with a clear picture of your goals, you can work
toward establishing a budget that can help you reach them.
Identify your current monthly income and expenses
To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current
monthly income and expenses. You can jot the information down with a pen and paper, or you
can use one of the many software programs available that are designed specifically for this
purpose.
Start by adding up all of your income. In addition to your regular salary and wages, be sure to
include other types of income, such as dividends, interest, and child support. Next, add up all of
your expenses. To see where you have a choice in your spending, it helps to divide them into
two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary
expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have
identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and
so on. To make sure that you’re not forgetting anything, it may help to look through canceled
checks, credit card bills, and other receipts from the past year. Finally, as you list your
expenses, it is important to remember your financial goals. Whenever possible, treat your goals
as expenses and contribute toward them regularly.
Evaluate your budget
Once you’ve added up all of your income and expenses, compare the two totals. To get ahead,
you should be spending less than you earn. If this is the case, you’re on the right track, and you
need to look at how well you use your extra income. If you find yourself spending more than
you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down
on your discretionary spending. And remember, if you do find yourself coming up short, don’t
worry! All it will take is some determination and a little self-discipline, and you’ll eventually get
it right.
Monitor your budget
You’ll need to monitor your budget periodically and make changes when necessary. But keep in
mind that you don’t have to keep track of every penny that you spend. In fact, the less record
keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any
budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed
car transmission).
Tips to help you stay on track
- Involve the entire family: Agree on a budget up front and meet regularly to check your
progress - Stay disciplined: Try to make budgeting a part of your daily routine
- Start your new budget at a time when it will be easy to follow and stick with the plan
(e.g., the beginning of the year, as opposed to right before the holidays) - Find a budgeting system that fits your needs (e.g., budgeting software)
- Distinguish between expenses that are “wants” (e.g., designer shoes) and expenses that
are “needs” (e.g., groceries) - Build rewards into your budget (e.g., eat out every other week)
- Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending
less, but your credit card debt will continue to increase
The information given herein is taken from sources that IFP Advisors, LLC, dba Independent
Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its
advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness.
Securities offered through IFP Securities, LLC, dba Independent Financial Partners (IFP),
member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, dba Independent
Financial Partners (IFP), a Registered Investment Advisor. IFP and Hitchcock Maddox Financial Partners are not affiliated. Securities offered through IFP Securities, LLC, member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, a registered investment adviser.