Budgeting—it's the secret sauce to financial success and a life free from money-related stress. It is an essential tool that empowers individuals and businesses alike to take control of their finances, set goals, and plan for a secure financial future. There are seven elements that can supercharge your budgeting game. In this article, we're diving deep into the nitty-gritty of budgeting these seven must-have elements that will transform your money management skills and set you on the path to financial freedom. So, get ready to budget like a pro, because we've got the inside scoop on what it takes!
But first, a couple of disclaimers.
→Now, a personal budget is, well, personal. Everyone’s budget is not going to look the same. That is why it is so difficult to find any particular worksheet or app that works perfectly well. That is why I recommend creating a worksheet for yourself—but I am partial to pen and paper, after all.
→Further, I personally don’t think everyone needs a budget (I might get hate mail for saying that). I think you need a budget if you are living paycheck to paycheck—like 2/3 of Americans right now. More on that later, though.
Now, here we go!
Financial Goals. Add financial goals to your budget because it helps to keep you motivated and on track with your spending. When you have specific goals in mind, it's easier to make choices about how to spend your money. For example, if you are saving for a down payment on a house, you might be more likely to cook at home instead of eating out or to skip that new pair of shoes. Having financial goals in your budget also helps you make better financial decisions overall.
Income. You must include all sources of income. Be sure to include your salary after taxes, investment income, government benefits, side hustle income, rental income, child support, alimony, etc. It is important to include all of your income in your budget so that you can get a clear picture of your financial situation.
Start by tracking your income for a month or two. This will give you a good idea of how much money you are receiving each month and from what sources. Once you have a good understanding of your income sources, you can start to add them to your budget. Create a category for each source of income and enter the amount of money you receive each month. If you have any irregular sources of income, such as bonuses or commissions, you can estimate how much money you expect to receive each month and add that amount to your budget. You want to capture this information to ensure your expenses (we talk about those next) do not exceed your income.
Expenses. This is all of the money you spend each month, on everything from rent and food to entertainment and travel. Like your income, you will track for a month or two to get a better idea of your expenses.
You will find you have both fixed and variable expenses. You will estimate a figure for your variable expenses based on previous figures. Also, don’t forget to add in your annual expenses, like taxes, annual subscriptions, and insurance. It is important to add an everyday buffer figure under expenses. This will cover items like your daily coffee and snacks.
It is important to track where your money is going and to make sure that you are not overspending. By adding expenses to your budget, you can:
Identify areas where you can cut back on your spending.
Make sure you are not spending more money than you earn.
Plan for future expenses.
Additional payments to debt. I understand not everyone has debt, but most Americans do—77% of Americans, as a matter of fact. If you are able to pay more than your regular payment then you are on your path to becoming debt free.
Savings/Investment Allocation. This is where you will add your savings buckets and the money you send to your investment accounts. You will want to add buckets for your emergency fund, future purchases, vacations, Christmas, or whatever else you are saving for. I recommend having separate savings accounts for each of your savings goals.
Total leftover. With a zero-based budget, this figure would be zero. But, if you find you have money left over after you complete your budget, then you will need to determine where you want to put this. Maybe you decide to add a little extra to your debt, or maybe you use it to celebrate a milestone you have reached.
Brainstorm. Always keep a brainstorming or notes section for free thinking during your budget preparation. This can be helpful for identifying new goals or budget ideas.
Your budget is your own. Design it to fit your lifestyle and personal preferences, but be sure to add in each of these elements. They will help you reach your financial goals faster and be on your way to financial freedom.