When you look at your finances, you might find that you’re overspending or having difficulty saving up for the things that you want. Perhaps you have some debt that you just can’t seem to get rid of. This is where a budget comes into play
. Creating and sticking to a budget gives your wallet a direction, acting as your financial Google Maps.
Mapping Out Your Finances
1. Gather Financial Statements
The first step to mapping out your finances is to gather up all of your most recent financial statements, including bank statements, bills, and anything else regarding an income source or expense.
To make the process of budgeting easier, organize your transactions and financial statements into categories. Categories can be as simple as income and expenses, but you can further divide those categories into more specific groups, such as home-related expenses, medical expenses, and more.
These expense records serve as landmarks for your financial journey. By choosing and sticking with an organizational process that works for you, you can get oriented and start moving your personal finances in the right direction.
2. Record Sources of Income
Once all of your financial documents are in order, it’s time to start writing things down. Begin with all of your income sources. If you earn additional money outside of your regular paycheck, such as child support, rental income, or an income from a side hustle, be sure to record that, too. This will give you a good idea of how much money you make during the month.
3. Create a List of Monthly Expenses
After recording all sources of income, it’s time to record all of your expenses. Include all of them, including the seemingly insignificant ones, such as the coffee you grab on your way to work or the lunch you buy a few days a week.
Break your expenses into fixed and variable categories. Fixed expenses are those that remain relatively the same each month or are essential for your way of life. These expenses may include such things as:
- Mortgage or rent
- Car payments
- Credit card payments
Variable expenses are those that are likely to change every month and include things such as:
- Dining out
Don’t forget to factor in special occasions for the month, such as birthdays and holidays. If you know that you’re going to be buying gifts or that you’ll need to purchase additional ingredients to make a dish for a party, be sure to include these expenses in your budget.
Another expense that you need to include in your budget is savings. You may be saving up for a down payment on a new house, setting money aside for your children’s education, or building an emergency fund
. No matter your savings goals, you should be setting aside some money each month.
Knowing how much money you have access to and how much you can expect to spend is like identifying speed limits along your route. You may be tempted to overspend on leisure categories like entertainment or restaurants, but seeing how much money you’ll still need for utilities, rent, or other necessities will tell you where and when to hit the brakes.
4. Set Budget Goals for Each Category
Add all of your income sources together. Then, subtract your expenses from your income and see where you sit. Are you spending too much? Do you have anything left at the end of the month?
With all of your information recorded and organized, you can now take a good, close look at exactly where all of your money is going and identify your spending habits. Are you spending too much on groceries? Is your morning coffee costing more than you thought? Are you not designating enough for savings?
By identifying your habits and planning ahead, you can more easily set specific goals for each of your budget categories. These goals are your destinations—the places where, with the right strategy, your budget can take you.
Be sure to incorporate these destinations into your budget from the beginning. Whether you’re heading for reduced spending on entertainment, paying off a credit card, or putting away enough savings to afford your dream vacation, setting goals lets you see where you’re headed and what steps will get you there. With your route set and your speed limits identified, you can estimate how long it will take you to arrive at your financial goals.
5. Review Your Budget Monthly
An important thing to keep in mind is that your budget isn’t the sort of thing that can be written once and left alone. Just like how traffic jams, construction, and new roads can impact the route and arrival time that Google Maps provides, changes in your finances or your situation can impact your budget.
Holidays or birthdays could mean you spend a little extra for gifts. Maybe you got a raise at work, got married, or had a baby. Any changes that affect your finances, big or small, need to be accounted for to keep you on track.
Review your budget every month to monitor how you’re doing and watch your progress. You can add new sources of income, eliminate debt categories, or add new financial obligations and then shuffle your budget around as needed. Reviewing your budget is vital for staying on the best route to success.
Start Your Budgeting Journey
Technology can make budgeting and tracking your finances simple and easy…and even fun. Using a budgeting app like Firstrust’s Personal Financial Management tool
lets add accounts from every financial institution you use, so you can view all of your balances and transactions in one place, on any device. You can sort your transactions by category, track your spending, and analyze your financial patterns to gain insights into how to save money.
Even the most seasoned travelers need a little assistance from Google Maps now and again. In the same way, everyone can use a little help with their finances. A budget can help you gain control, see where you’re headed, and keep you on the road to financial success.