There are several aspects of personal finance to consider when starting your journey to financial freedom. From saving to debt elimination, it’s important to consider every aspect equally and understand their roll in the process.
Budgeting is critical to the personal finance process and extends into other aspects of your financial life. Forming a budget is not only planning where your money goes, but it also is giving you permission to spend. A budget simply gives your money a direction and purpose, whereas without one you are more likely to slowly leak money, negatively affecting your finances. This article will outline a few ways to start a budget, as well as points to consider when forming yours.
Selecting Your Budget Tool
When starting your budget, it is important to find the right tool to utilize. If you find yourself at a computer, then an Excel spreadsheet may be for you. On the other hand, if you are on the go and utilize your phone for most things, then a mobile app may be more efficient for you.
First, we’ll start with an Excel spreadsheet, which is essentially customizable to whatever you need. While it is low cost once you’ve acquired the program, the difficulty is it may not be efficient on your phone. Within the spreadsheet, you can utilize formulas and macros that automatically update outputs when you adjust the inputs. This will save you time by eliminating many manual calculations, as well as provide you with the ability to create graphics.
The next tool that may be useful is an app for your phone. Dave Ramsey has an app called Every Dollar, which allows you to populate fields and data points, formulating an easy to read budget. One of the drawbacks to this is you are only able to do what the app allows. If you want to customize certain aspects to fit your needs, you may be limited in what you are able to do.
Other budgeting tools to consider include Personal Capital. Also, you can utilize Google Sheets, which is the Google version of an Excel spreadsheet. The benefit of using that allows you to access the data from any computer.
Your Budgets Plan
Once you’ve selected your budgeting tool, you need to have a plan for your budget. For many, it may be to eliminate debt, or for others, it may simply be tracking of spending over a certain period of time. Regardless, you need to have a clearly defined plan for your budget. Simply writing your spending for the sake of doing it is ineffective.
When filling out your budget, keep your main goal in mind. If it is to eliminate debt, minimize spending on items such as eating out or entertain. Should your goal be to invest more, take a portion of your savings and allocate it to your investment account. The budget is directing your money where to go and allowing you to control your finances.
Adjusting Your Budget
Lastly, your budget is a living document that will evolve and change quite frequently. When you make your budget for one month, it may drastically change the next. For example, in July you may have a birthday and vacation but in January you have nothing planned. This means you can save more in January and be more vigilant with your spending in July. Again, your budget gives your permission to spend as you are spending with a purpose.
Creating a budget is a powerful way to tighten your spending habits and ensure your money is working for you. It’s easy to go through a drive-through and spend five dollars, but do that a few times and it begins to add up. Sticking to a budget can help you clean up your financial health by eliminating debt, saving for retirement, and simply bettering your financial health.