Managing personal finances can be an overwhelming task, especially in the beginning. However, by creating a budget you will start to take control of your finances, track your expenses, save more money, and work towards your financial goals. Let’s keep it simple but we are starting our journey to financial stability today:
- Access your current expenses. Review 3-6 months worth of bank statements and write down all of your current expenses. This step is critical, and will give you the current view of your financial state.
- Set your financial goals. Write down exactly what you are planning to accomplish. For example: ‘I will pay off my credit card debt by the end of the year’ or ‘I will begin saving 20% of my income by January xxxx’. Be precise and put a date on it.
- Track your expenses. This is a tedious task, but it is very important. First list all of your income, including any freelance or hobbies that brings income into your home. Then categorize your expenses into ‘needs’, ‘wants’ and ‘savings’. For example: needs = rent, utilities, transportation while wants = eating out (a large expense for me), and tv or music subscriptions. This will help you understand where your money is going and how you measure up in each category.
- Create a budget: based on your income and expenses, create a budget that aligns with your financial goals. It is important that you’re realistic with your budget. The money you are currently spending in your ‘wants’ category may have to change in order to meet your goals. So make the change- don’t procrastinate, do it now. Also: prioritize savings in your budget- no matter how small the amount is in the beginning.
Financial experts (which I am not) say that your finances must fit into the 50/30/20 Rule. This is where 50% of your income = Needs, 30% of your income = Wants, and 20% of your income = Savings. You may have some work to do but you are starting today and you will achieve your financial goals.