5 Steps To Create A Budget That Works
June 6, 2018
People often make purchases without thinking twice. Think about your morning coffee, for example. While convenience is important, you might not realize that buying a $5 latte every morning can add up to an extra $100 per month, or $1200 per year.
Budgeting is a smart way to consider your financial priorities and adjust your saving and spending accordingly in order to reach your long-term goals. To help you get started, here are 5 easy steps to create a budget that actually works:
Step 1. Determine What You’re Saving For
Before you create a plan, you need to know what you’re budgeting for. There are an unlimited amount of activities you could budget for, all with different timelines and cost, from backpacking in Europe to buying your first home. Start by writing down 5 things you’re saving for, the cost of each, and a projected timeline of how long it might take to save.
Step 2. Evaluate your Current Spending Habits
Determine how much money you’re bringing in and how much you want to save. A good rule of thumb – follow the 50/30/20 rule, where you keep 50% of your income for necessities, 30% for leisure spending, and 20% for saving. To start planning, make a two column list of your necessary expenses on one side and your unnecessary expenses on the other, and include the cost of each activity. You might think you know exactly what you’re spending each month, but you’d be surprised to find out how quickly that $5 latte every morning adds up.
Step 3. Set A Series of SMART Goals
Now is the time to start eliminating your unnecessary spending, saving for long-term purchases, and thinking about how to make returns on your money. SMART is a goal-setting strategy that stands for smart, measurable, attainable, relevant, and time-bound. Think about 5 specific things you’re saving and a SMART goal for how you’re going to achieve each one. For example, if my goal is to save $10,000 for a new car, my SMART goal might be to limit my eating out to $30 a week for 6 months.
Step 4. Make Your Money Work For You
No matter how much money you have saved up, letting your money sit in a savings account is a missed opportunity to put your money to work elsewhere. Investing can help magnify your wealth with contributions such as compound interest and ownership of a company’s assets. If you’re not investing already, there are easy ways to get involved, from reading financial blogs to downloading finance apps, to have an additional resource for money making.
Step 5. Think for the Long-Term
Think of budgeting as something you can do today to help yourself for the future – rather than focusing on short-term satisfaction, think about long-term gain. By making a savings plan, you can determine what matters most to you and adjust your spending accordingly. Making small adjustments can seem difficult at first, but giving up that morning coffee run and opting to make your own can help you reach the goals you want to achieve in the long run, like taking a trip to Europe or finally buying the car you’ve dreamed of.
To get started with your budgeting plan, download our basic budgeting template below!