As you embark on keeping our New Year’s promise for a better financial year, I encourage you to create and maintain a budget for you or your family. The best way to achieve your overall financial goals or truly assess your financial situation is through a budget. A strong budget outlines the whole picture of your income as well as your expenses each month. By following one, you can eventually achieve long term financial goals such as setting money aside for savings. The numbers do not lie and having them in writing before your eyes each month helps you to become more disciplined in your spending habits.
The first way to create improve your monthly budget is ensure that the budget you create includes ALL aspects of your life. We all have bad habits that we would like to ignore, but if we do not take those expenses into account, then the budget is useless. The most important element is your income. And I would go further to say that your fixed income is crucial, because it is steady. If you have income coming in that fluctuates, you will want to average that out for a more realistic picture. The next important details are the fixed monthly bills. These include your housing payment (rent or mortgage), car, or insurance payments. These do not change from month to month. Finally, to gain an accurate picture you need to allot space for unexpected expenses. Any good budget takes into account that emergencies do arise. By setting aside funds for these things, they will become more manageable.
The second way to improve your budget and stay on track this year is WRITE IT OUT! Do not just sit down and jot the line items from above out. You need to actually sit down and write the numbers on paper in an organized way. There are a myriad of forms online to help you structure your budget that will prompt you to include the whole financial picture. One I particularly like can be found here. It gives the complete picture and is detailed. Up front, it takes some work. You have to gather bills and pay stubs. You might see the numbers not adding up right before your face, hence the debt you are facing. I am not going to sugarcoat it; it can be scary to see it all laid out. But in the scariness lies the goodness and path to a better financial path.
My third and final tip to share with you on how to improve your monthly budget is examine where you can cut back. I know this seems cliche and simple, but it is the hardest part of creating an accurate and successful budget for your family. Once you have included ALL aspects of your life (the good and the bad) and then written it all down for you to see, it is time to see where you can cut back. Where can you save? Because by saving and setting money aside, you will be able to pay off debt and eventually eliminate it. For example, many of us think of our cable as a utility, but it is really an entertainment, an extra. It is non-essential. Maybe you are not willing to part with it, but perhaps there are ways to think about reducing its cost. Look into other companies or ways to bring entertainment into your home. Same goes with that cup of coffee you purchase everyday or even just occasionally. It may not seem like much but saving that $5, even if it is just a weekly treat, is a $260 savings yearly. THAT IS NOT INSIGNIFICANT when you are trying to pay down debt. So I am asking you to see where you can reduce and cut so that you can increase your savings.
Just like the only way to lose weight is through hard work and better diet. The only way to improve your monthly budget is also through hard work and better spending habits. Recognizing that change must be made is the first step, so you have already begun.
If you are unsure how to alleviate your mounting debt and feel overwhelmed, I encourage your to contact us and set up a complimentary 30 minute consultation. We will provide your with personal attention and guide you to the answers you need for your financial situation. Khan Law is here to help you.